There are different recovery conventions.Two common ones are RMV (recovery of market value)and RT (recovery of Treasury value).For a given dollar value recovered on a default bond,it is generally the case that A)RMV $$ RT) C)Which one is greater depends on the level of interest rates. D)None of the above.

Question

There are different recovery conventions.Two common ones are RMV (recovery of market value)and RT (recovery of Treasury value).For a given dollar value recovered on a default bond,it is generally the case that
A)RMV <
RT)
B)RMV $$>$$
RT)
C)Which one is greater depends on the level of interest rates.
D)None of the above.

Quizplus · Accepted Answer

RMV (Recovery of Market Value) is generally greater than RT (Recovery of Treasury value) because the market value of a bond typically includes a risk premium over the risk-free rate (which Treasury securities represent), reflecting the additional risk of default.

There Are Different Recovery Conventions >>> RT) C)Which One Is Greater Depends on the Level of of Market

There Are Different Recovery Conventions $>$ RT)
C)Which One Is Greater Depends on the Level of of Market