Which of the following securities will likely have the highest default risk premium?

Question

Quizplus · Accepted Answer

The default risk premium is the additional compensation that investors demand for bearing the risk of default. The higher the default risk of a security, the higher the default risk premium. Among the given choices, the Bbb-rated corporate bond (Option B) has the highest default risk as it is not considered as investment grade and has a higher probability of default. The U.S. Treasury bond and bill (Options A and D) are considered risk-free as they are backed by the government, while the Aaa-rated corporate bond (Option C) is of the highest credit quality and has a lower default risk compared to the Bbb-rated bond.

Which of the Following Securities Will Likely Have the Highest