The Amount of Leverage of a Borrower and the Probability

question 1

True/False

The amount of leverage of a borrower and the probability of default are positively related, but only after some minimum level of debt.

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Definitions:

Increases

Refers to a rise or growth in a particular metric or quantity, such as price, value, or quantity.

Coupon Rate

The annual interest rate paid by a bond relative to its face value, representing the yield an investor expects to earn if the bond is held to maturity.

Yield

It refers to the earnings generated and realized on an investment over a particular period, expressed as a percentage.

Duration

A measure of the average life of a bond, defined as the weighted average of the times until each payment is made, with weights proportional to the present value of the payment.