Unlike investing in a U.S. Treasury security, an investor who lends funds to a corporation by purchasing its debt obligation is exposed to ________.

Question

Quizplus · Accepted Answer

When an investor lends funds to a corporation by purchasing its debt obligation, they are exposed to credit risk. Credit risk refers to the risk that the borrower may default on the loan or not be able to make interest payments. This is different from investing in a U.S. Treasury security, which is considered to have very low credit risk because it is backed by the U.S. government. The other answer choices, liquidity risk, maturity risk, and nonmarket risk, may also exist but are not directly associated with lending funds to a corporation through debt securities.

Unlike Investing in a U