Which one of the following represents additional compensation provided to bondholders to offset the possibility that the bond issuer might not pay the interest and/or principal payments as expected? a. Interest rate risk premium b. Taxability premium c. Default risk premium Inflation premium e. Liquidity premium

The additional compensation provided to bondholders to offset the risk that the bond issuer might fail to make interest or principal payments is known as the default risk premium. This premium reflects the extra yield that investors seek as compensation for taking on the risk of potential default. In real-world terms, when bondholders assess the creditworthiness of an issuer, they look closely at the issuer's financial health and past payment behavior. A bond from a company with a shaky reputation will typically offer a higher default risk premium, enticing investors to take a chance while acknowledging the associated risks!