The coupon rate on newly issued bonds is usually higher for bonds with ________ terms and ________ risk that the borrower will go bankrupt.

Question

Quizplus · Accepted Answer

Risky firms pay high interest rates when they borrow to compensate the lender for the additional risk involved. The longer the borrowing period the more risk must be borne, so interest rates generally are higher for long-term bonds.

The Coupon Rate on Newly Issued Bonds Is Usually Higher