Which of the following is a correct statement about changes in the default risk premium (DRP) over time? a. The DRP varies with the business cycle: rising in recessions and falling in expansions. b. The DRP varies with the business cycle: falling in recessions and rising in expansions. c. The DRP independently moves with the business cycle.
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The DRP is the additional yield that investors require to hold a bond that has a risk of default compared to a risk-free bond. It reflects the perceived risk of the issuer defaulting on their obligations. Show more…
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