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

Question

Quizplus · Accepted Answer

The default risk premium is a measure of the additional yield investors demand to hold a security with default risk over a risk-free security. Bbb-rated corporate bonds are below investment grade, meaning they have a higher chance of defaulting, and therefore have a higher default risk premium compared to U.S. Treasury bonds (which are considered risk-free) or Aaa-rated corporate bonds (which have a lower chance of defaulting). The fact that it is actively traded on a major exchange also implies that the market believes there is a greater possibility of default. U.S. Treasury bills have very little default risk and therefore have a very low default risk premium.

Which of the Following Securities Will Likely Have the Highest