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.

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Definitions:

Cancellable

Refers to an agreement or financial instrument that can be terminated or voided by either party under predefined conditions.

Penalty

A punishment imposed for breaking a law, rule, or contract.

Tax-Oriented Leases

Leasing arrangements designed to pass tax advantages from the lessor, who owns the asset, to the lessee, who uses the asset.

Marginal Tax Rates

The percentage of tax applied to your income for each tax bracket in which you qualify, signifying the rate at which your last dollar of income is taxed.