question archive A corporate bond will typically sell at a lower price than an equivalent sovereign bond with the same maturity and payment structure because a
A corporate bond will typically sell at a lower price than an equivalent sovereign bond with the same maturity and payment structure because a
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A corporate bond will typically sell at a lower price than an equivalent sovereign bond with the same maturity and payment structure because
a. currency risk.
b. duration risk.
c. interest rate risk.
d. credit or counterparty risk.
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The correct option is "D"
Corporate bonds have default risk. that is there is a chance that the issuer may default. On the other hand, sovereign bonds are default-free. So if a person is buying a corporate bond instead of a sovereign bond, then obviously he will want to pay a lower price due to the credit and counterparty risk he is facing.
