Which statement is true about default risk?

• A. It is lower for the U.S. government
• B. It is lower for risky companies
• C. It is lower for the U.S. government
• D. It does not apply to corporate bonds

Answer: (A)

Default risk is the chance that a borrower won’t be able to make promised interest or principal payments. The U.S. government is generally seen as having the lowest default risk because it can raise taxes and, if needed, monetize debt to meet obligations. That makes U.S. government debt a common benchmark for safety, far lower in risk than bonds issued by companies, especially riskier ones. So the true idea is that default risk is lower for the U.S. government. The other statements don’t fit: risky companies actually have higher default risk, and corporate bonds do carry default risk, not a lack of it.