Under Normal Economic Conditions, the Major Source of Risk Faced

question 56

Multiple Choice

Under normal economic conditions, the major source of risk faced by investors who purchase investment grade bonds is

• A) default risk.
• B) liquidity risk.
• C) interest rate risk.
• D) purchasing power risk.

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Definitions:

Premium on Bonds Payable

The excess of a bond's sale price over its principal amount.

Bonds Payable

A long-term liability account that records the amounts owed by a company to bondholders until the debt’s maturity date.

Installment Note

A debt or loan that is repaid over time with a set number of scheduled payments, typically including both principal and interest.

Interest Expense

Interest expense is the cost incurred by an entity for borrowed funds, payable over a certain period to the lender as compensation for the loan.