What Is Default Risk

question 38

Multiple Choice

What is default risk?

• A) A problem that arises when a firm runs short of cash.
• B) The risk of asset prices rising too high.
• C) The chance that the borrower will fail to repay a loan.
• D) The risk associated with longer-term contracts.

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Definitions:

Present Value

The present fiscal value of a future sum of money or sequence of cash inflows, determined by a specified rate of return.

Perpetuity

A financial instrument or investment that generates a constant stream of cash flows with no end date.

Annuity Stream

A sequence of payments made at equal intervals, such as monthly or annually.

Payments Occur

Indicates the instances or periods at which monetary transactions or installments are made.