Weekly Online Forum: Chapter Assignment (5) Question 1 Which should have the higher risk premium on its in

Weekly Online Forum: Chapter Assignment (5) Question 1 Which should have the higher risk premium on its in

 

 

answer:

The Bond with C rating should have a higher risk premium.C rated bonds are considerd more vulnerable to default which reduces its demand and increases its interest rate.These are bonds in special situations where issuer is in bankruptcy but payments are continuing at present.

Baa bonds have adequate capacity to meet financial commitments but subject to adverse economic conditions.However they are still considered investment grade

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