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 +i+x)(1-p) + p(0) OB. (1+i)= P(1+i+x) + (1-p)(0) OC. (1+1)= (1 + i + x) OD. = (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 13

Use the tollowng defintions to examine the comparison an rivestor makes between a ristless bond and a risky bond t= the nomnal rate of inferest 09 a riskless bond 1+x the nominal rale of interest on a risky bond x the risk premim p= the probability of detaul by the nisky bond issuer Which ot the folowng oxpressions indicates that the lino bonds will yold the same expected return? A. (1+A)=(1+i+x)(1)(0) B. (1+i)=(1+i+x)+(1)(0) c. (1+1)=(1+1+x) D. 1=(1+x)(1)+(0) If the two bonds thave the same expected retum, irvestors wil The pretorence investars have for risiliess bonds even when risky bochds possess the same expected return as riskiess bonds is attrituted to ievostors being iok