A bond with default risk will always have a ________ risk premium and an increase in its default risk will ________ the risk premium.
A)positive;raise
B)positive;lower
C)negative;raise
D)negative;lower

Question

Quizplus · Accepted Answer

A bond with default risk will always have a positive risk premium because investors require compensation for the additional risk they are taking on. An increase in its default risk will raise the risk premium because the likelihood of default has increased, making the bond more risky and less attractive to investors.

A Bond with Default Risk Will Always Have a ________