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.

A) inflation
B) default risk
C) maturity risk
D) Both a & b
E) All of the above

Question

Chantell Pearson · Accepted Answer

Final Answer : B, Explanation :  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 than a 30 year federal government bond. This is due to a higher ____ premium on the corporate bond.

A) inflation
B) default risk
C) maturity risk
D) Both a & b
E) All of the above

Definitions

Learning Objectives

Learning Objectives

Related questions

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.A) inflationB) default riskC) maturity riskD) Both a & bE) All of the above

Definitions

Learning Objectives

Learning Objectives

Related questions

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.

A) inflation
B) default risk
C) maturity risk
D) Both a & b
E) All of the above