The default risk premium is
A) relevant only for securities issued by very small companies.
B) the additional yield a saver requires for holding a bond with some default risk.
C) zero for corporate bonds, but quite substantial for corporate stock.
D) constant across the business cycle.

Question

Quizplus · Accepted Answer

The default risk premium is the additional yield that investors demand for holding a bond with some default risk. It is relevant for any issuer with default risk, not just small companies, and it is not necessarily zero for corporate bonds or constant across the business cycle.

The Default Risk Premium Is