Issuers · Question 8 of 12
Why do corporate bonds usually offer higher interest than federal bonds with the same maturity?
1 answer is correct. Easy
Show answer
Answer
- C Because investors demand a premium for the higher default risk
Explanation
A company is more likely to become insolvent than the federal government. Investors demand an interest premium for this risk, the credit spread. The worse the credit quality, the larger it usually is.