The difference between an interest rate of 5.4% on a 10-year corporate bond and an interest rate of 2.4% on a 10-year government bond is called

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28-08-2020
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The difference between an interest rate of 5.4% on a 10-year corporate bond and an interest rate of 2.4% on a 10-year government bond is called

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Priatouri Priatouri · Answer 1 · 2020-08-31T02:20:19+02:00

Answer:

The risk premium, is the right answer.

Explanation:

The difference between the interest rates of 10-year corporate bond and the 10-year government bond is termed as the “risk premium” because it is the rate of return that an investment offers or gives over the period and above the risk-free rate of return. Here risk-free rate is the return on the when there is no probability of financial loss. Therefore, government bonds have risk free returns because there is no financial loss associated with these bonds.