Question

Please explain why an asset that never defaults should still provide positive return? is there any risk it needs to compensate the investors?

Answer 1

An asset that never defaults should still provide positive return because investor would have put that money in other opportunity thus one should compensated for that opportunity and there is flucuation with the value of asset and there is inflation risk that need to be paid to the investors even asset is very safe and never defaults because things can change anytime.

Yes there is inflation risk due to change in inflation over the time so the investor should get paid for this, at the same time this securites are very safe and one has to bear the reinvestment risk as well because once came our of this securites then one has to invest that money in other opportunity.