Why Is the Yield of Bonds with Credit Risk Higher

question 19

Essay

Why is the yield of bonds with credit risk higher than that of otherwise identical default-free bonds?

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Definitions:

Interest Rate

The cost incurred by a borrower from a lender for the use of assets, represented as a proportion of the principal.

Payments

Transactions or transfers of money from one party to another, often in exchange for goods or services.

Annuity

A series of payments of a fixed amount for a specified number of periods.

Supplement Income

Additional income earned beyond the primary source of income, often used to meet extra expenses or save for future needs.