Get the answers you've been searching for with IDNLearn.com. Explore a wide array of topics and find reliable answers from our experienced community members.
Sagot :
The spread between the interest rates on bonds with default risk and default-free bonds is called the risk premium.
A default-free bond is a bond in which the bond issuer would not miss scheduled payments of either the coupon or principal. Bonds issued by the government are generally considered to be default-free. This is because the government can print money to make payments.
A bond with a default risk is a bond in which the bond issuer can miss scheduled payments of either the coupon or the principal. Bonds issued by private individuals are generally considered to be bonds with default risk.
Bondholders usually demand a compensation for holding bonds with a default risk. This compensation is known as risk premium.
Risk premium = return on bonds with default risk - return on default- free bond.
To learn more, please check: https://brainly.com/question/4304080?referrer=searchResults
We appreciate every question and answer you provide. Keep engaging and finding the best solutions. This community is the perfect place to learn and grow together. Your questions find answers at IDNLearn.com. Thanks for visiting, and come back for more accurate and reliable solutions.
