Which risk is about the borrower possibly unable to repay a bond?

• A. Market Risk
• B. Default Risk
• C. Inflation Risk
• D. Liquidity Risk

Answer: (B)

Default risk is the risk that the borrower won’t be able to repay the bond’s principal and interest as promised. This matters because if the issuer can’t make payments or defaults, you could lose part or all of your invested money. The other risks describe different problems: market risk is about price changes caused by interest rate movements and market conditions, inflation risk is the loss of purchasing power over time, and liquidity risk is the difficulty of selling the bond quickly without a big price drop. Understanding default risk helps you assess credit quality and the likelihood of getting your money back, which is central to choosing which bonds to hold and how to diversify.