Question

The difference between the average yield on a risky zero-coupon bond and a risk-free zero-coupon bond...

  1. The difference between the average yield on a risky zero-coupon bond and a risk-free zero-coupon bond is the:

    A.

    liquidity risk premium.
    B.

    credit spread.
    C.

    expected loss.
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Answer #1

The right answer is :-

(B) credit spread

Explanation :-

Credit spread is the difference between yield on a risky zero coupon bond and a default free zero coupon bond or risk free zero coupon bond

While

Liquidity risk premium is the compensation to be paid to investor to invest in the securities which are not liquid means which can not be easily sold .

Expected loss is the probability of default multiplied by loss when default occurs.

So, the right option is credit spread

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