Investments with a higher risk of default pay higher rates of interest than those which are less risky.

Question

Quizplus · Accepted Answer

This statement is true. Investors who take on higher risks by investing in assets that have a higher chance of default, such as junk bonds or high-yield corporate bonds, demand a higher rate of return to compensate for the increased risk. On the other hand, investments with a lower risk of default, such as high-quality government bonds, typically offer lower rates of interest.

Investments with a Higher Risk of Default Pay Higher Rates