The default risk premium is measured
A)by an index published monthly by the Securities and Exchange Commission.
B)by an index published monthly by The Wall Street Journal.
C)as the difference between the yield on the security and the yield on a U.S. Treasury security of the same maturity.
D)as the difference between the nominal yield on the security and the real after-tax yield on the security.

Question

Quizplus · Accepted Answer

The default risk premium is the additional return an investor expects to earn for investing in a security that is subject to default risk. This is typically measured as the difference between the yield on the security and the yield on a U.S. Treasury security of the same maturity. This is because U.S. Treasury securities are considered to be free of default risk, and therefore their yield is considered to be the risk-free rate. The default risk premium can vary depending on the creditworthiness of the issuer and the overall economic environment.

The Default Risk Premium Is Measured