The risk associated with Firm A's bond is greater than the risk of Firm B's bond. All other things being equal, investors would be willing to pay ________ for Firm B's bond.

Question

Quizplus · Accepted Answer

The risk/return trade-off suggests that the greater the risk associated with a specific security, the less investors are willing to pay for the bond, but the more they expect in interest payments for their willingness to take the risk. Investors will invest in a bond considered risky only if the potential expected return is sufficiently high to counter the risk.

The Risk Associated with Firm A's Bond Is Greater Than