Question

What does default risk refer to in the context of debt instruments?

a.

The risk of interest rate movements

b.

The issuer's inability to return principal at maturity

c.

The sensitivity of bond prices to market conditions

d.

The risk associated with longer-tenure bonds

Answer: (b).The issuer's inability to return principal at maturity Explanation:Default risk in the context of debt instruments refers to the possibility that the issuer may not be able to return the principal amount at the time of maturity.

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Q. What does default risk refer to in the context of debt instruments?

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