Default Risk

question 88

Multiple Choice

Default risk

• A) is the probability that a borrower will not pay in full the promised coupon or principal.
• B) exists only for the bonds of small corporations.
• C) is also known as market risk.
• D) is zero for bonds issued by cities and states.

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Definitions:

Real Interest Rates

The interest rate modified to account for inflation, indicating the actual cost of borrowing and the genuine return for investors.

Appreciate

To increase in value or worth over time, commonly used in financial contexts.

Depreciate

The process by which an asset's value decreases over time due to use, wear and tear, or obsolescence.

Supply-of-Pounds Curve

The supply-of-pounds curve represents the amount of British pounds that suppliers (like the British) are willing to provide at different exchange rate levels, often used in the context of Forex markets.