A 30 year corporate bond pays a higher interest rate than a 30 year federal government bond. This is due to a higher ____ premium on the corporate bond.

Question

Quizplus · Accepted Answer

The higher interest rate offered by the corporate bond is due to the higher default risk associated with it. Since corporations are not backed by the federal government, there is a greater chance that they may default on their bonds. Thus, to compensate investors for the additional risk, a higher interest rate is offered on the corporate bond.

A 30 Year Corporate Bond Pays a Higher Interest Rate