The spread between the interest rates on bonds with default risk and default-free bonds is called the
A)risk premium.
B)junk margin.
C)bond margin.
D)default premium.

Question

Quizplus · Accepted Answer

The spread between the interest rates on bonds with default risk and default-free bonds is called the risk premium. This reflects the extra compensation that investors demand for taking on the additional risk of default associated with the bonds. Junk margin and bond margin are not commonly used terms in finance, and default premium is not as accurate as risk premium since it only focuses on the default aspect of risk.

The Spread Between the Interest Rates on Bonds with Default