If you borrow at 6% per year for 5 years and use the proceeds to buy a

Question:

If you borrow at 6% per year for 5 years and use the proceeds to buy a 5 year bond that has a yield to maturity of 8% your leveraged position is doomed because of credit risk. (Assume that all bonds pay interest semiannually and that all interest received is reinvested at 8% per year). TRUE or FALSE? Please explain your answer.

Fantastic news! We've Found the answer you've been seeking!