The risk premium of corporate bonds typically increases
A)when the average price of corporate bonds increase.
B)during a recession.
C)when the interest rates on corporate bonds decreases.
D)when the risk premium on treasury bonds increases.

Question

Quizplus · Accepted Answer

During a recession, there is typically a higher risk of default on corporate bonds due to a decline in the company's profitability and ability to repay its debts. This risk is reflected in the higher risk premium demanded by investors when purchasing corporate bonds. Therefore, the risk premium of corporate bonds typically increases during a recession.

The Risk Premium of Corporate Bonds Typically Increases