A bond with default risk will always have a ________ risk premium,and an increase in its default risk will raise the risk premium.
A) positive
B) negative
C) unpredictable
D) minimal

Question

Quizplus · Accepted Answer

A bond with default risk will always have a positive risk premium. This is because the investor is taking on additional risk by holding the bond, as there is a chance that the issuer may default and the investor may not receive all of the promised payments. An increase in default risk will raise the risk premium, as investors will require a higher return to compensate for the greater risk.

A Bond with Default Risk Will Always Have a ________