Which one of these is included in the yield of a bond with a low credit rating but not included in a Canadian Treasury bond yield? Assume both bonds are selling at a premium.
A)real rate of return
B)inflation premium
C)default premium
D)loss of premium

Question

Quizplus · Accepted Answer

A bond with a low credit rating is considered riskier, so investors require a higher rate of return to compensate them for the risk of default. This is known as the default premium, which is included in the yield of a bond with a low credit rating but not included in a Canadian Treasury bond yield. The real rate of return and inflation premium may be included in both bond yields, while loss of premium is not relevant in this scenario as both bonds are selling at a premium.

Which One of These Is Included in the Yield of a Bond