The risk structure of interest rates says:
A) the interest rates on a variety of bonds will move independently of each other.
B) lower rated bonds will have higher yields.
C) U.S. Treasury bond yields always change by more than other bonds.
D) interest rates only compensate for risk during recessions.

Question

Quizplus · Accepted Answer

The risk structure of interest rates states that lower rated bonds ("riskier" bonds) will have higher yields to compensate for the additional risk. This is because investors require a higher return to compensate for the increased likelihood of default or other factors that make the investment riskier.

The Risk Structure of Interest Rates Says