What are the relationship between bond prices and the probability of default?

Expert Solution

The bond prices and the probability of default are inversely related to each other. If the probability of default is higher, the bond prices are lower and vice versa.

This is because the bond investor must be compensated for investing in a higher risk bond. The investor is compensated with a lower price for investing in a higher probability of default bond.

jeff jeffy answered 2 years ago

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