Default risk
A) is the probability that a borrower will not pay in full the promised coupon or principal.
B) exists only for the bonds of small corporations.
C) is also known as market risk.
D) is zero for bonds issued by cities and states.

Question

Quizplus · Accepted Answer

Default risk refers to the risk that a borrower, whether a corporation or a government, will default on paying the promised coupon or principal amount. It is not limited to small corporations and is different from market risk. Therefore, option B and C are incorrect. Option D is also incorrect as even bonds issued by cities and states carry a certain level of default risk.

Default Risk