Credit risk implies that the promised yield to maturity on the bond is higher than the expected yield.

Question

Quizplus · Accepted Answer

Credit risk refers to the risk that a borrower may default on their debt obligation, which can affect the promised yield to maturity on a bond. If there is a higher possibility of default, investors will demand a higher yield to compensate for the increased risk, resulting in a higher promised yield than the expected yield. Therefore, the statement is true.

Credit Risk Implies That the Promised Yield to Maturity on the Bond