The Risk Spread

question 96

Multiple Choice

The risk spread:

• A) is also known as the default-risk premium.
• B) should have a direct relationship with the bond's price.
• C) should have an inverse relationship with the bond's yield.
• D) is always constant.

---

Definitions:

Capital Projects Funds

Funds used by governmental entities to finance the acquisition or construction of major capital facilities.

Pension Trust Fund

A fund established by an employer to facilitate and organize the investment of employees' retirement funds contributed by the employer and employees.

Special Revenue Funds

Funds used by governments to account for revenue from specific sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects.

Enterprise Funds

Funds used by a government to account for operations financed and operated in a manner similar to private business enterprises, where the intent is that the costs of providing goods or services to the public on a continuing basis be financed or recovered primarily through user charges.