All of the following are true about the risk spread except it should:
A) be higher for highly speculative bonds than investment grade bonds.
B) have a direct relationship with the bond's yield.
C) have an inverse relationship with the bond's price.
D) have a direct relationship with the bond's price.

Question

Quizplus · Accepted Answer

The statement "have a direct relationship with the bond's price" is not true about the risk spread. The risk spread is the difference between the yield on a bond and the yield on a benchmark security, such as a Treasury bond. It reflects the perceived riskiness of a bond compared to the benchmark. Therefore, the risk spread should have an inverse relationship with the bond's price - as the risk spread widens, the bond's price should decrease, and vice versa.

All of the Following Are True About the Risk Spread