The default risk premium is measured
A) by an index published monthly by the Securities and Exchange Commission.
B) by an index published monthly by The Wall Street Journal.
C) as the difference between the yield on a non-Treasury security and the yield on a U.S. Treasury security of the same maturity.
D) as the difference between the nominal yield on the security and the real after-tax yield on the security.

Question

Quizplus · Accepted Answer

The default risk premium is measured as the difference between the yield on a non-Treasury security and the yield on a U.S. Treasury security of the same maturity. This is because U.S. Treasury securities are considered risk-free, so the difference in yield between a non-Treasury security and a Treasury security of the same maturity reflects the additional risk investors must take on to invest in the non-Treasury security. The Securities and Exchange Commission and The Wall Street Journal do not publish indices related to default risk premium, and the calculation does not involve after-tax yields.

The Default Risk Premium Is Measured