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Use the following definitions to examine the comparison an investor makes between a riskless bond and a risky bond. i=the nominal rate of interest on
Use the following definitions to examine the comparison an investor makes between a riskless bond and a risky bond. i=the nominal rate of interest on a riskless bond i+x=the nominal rate of interest on a risky bond x =the risk premium p=the probability of default by the risky bond issuer Which of the following expressions indicates that the two bonds will yield the same expected return? O A. (1+1)= (1+1+x) OB. (1+1)= (1+i+x)(1 p) + p(0) O C. (1+1) = P(1 + i + x) + (1 p)(0) O D. (1+x)(1-p)+p(0) If the two bonds have the same expected return, investors will The preference investors have for riskless bonds even when risky bonds possess the same expected return as riskless bonds is attributed to investors being risk
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