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8.6: How is default risk different from credit risk?

8.6: How is default risk different from credit risk?

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Default risk refers to the risk associated with unability to repay principal and interest payment on due date. In other words we can say that risk due to chances of unability to pay debt obligations on due date is known as default risk wheras credit risk refers to the risk that the financial health of a bond issuer could change between issue and maturity time period. In other words we can say that due to change in the credit ratings of financial securities may lead to risk of return on these securities.

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