SIE practice questionmediumCredit/default risk
A coupon bond trades at a higher yield than comparable Treasury bonds. What risk premium does this higher yield usually compensate for?
- AInflation risk
- BLiquidity risk
- CCredit/default risk✓ Correct answer
- DInterest rate risk
Explanation
Why C — Credit/default risk
Non-Treasury bonds carry credit risk, so investors demand a risk premium over Treasuries. Interest rate, inflation, and liquidity risks may also exist but are not the main justification.
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