Question : 11) Other things being equal, an increase in the default : 1373676

 

 

11) Other things being equal, an increase in the default risk of corporate bonds shifts the demand curve for corporate bonds to the ________ and the demand curve for Treasury bonds to the ________.

A) right; right

B) right; left

C) left; right

D) left; left

 

12) An increase in the riskiness of corporate bonds will ________ the price of corporate bonds and ________ the price of Treasury bonds, everything else held constant.

A) increase; increase

B) reduce; reduce

C) reduce; increase

D) increase; reduce

 

13) An increase in the riskiness of corporate bonds will ________ the yield on corporate bonds and ________ the yield on Treasury securities, everything else held constant.

A) increase; increase

B) reduce; reduce

C) increase; reduce

D) reduce; increase

 

14) An increase in default risk on corporate bonds ________ the demand for these bonds, but ________ the demand for default-free bonds, everything else held constant.

A) increases; lowers

B) lowers; increases

C) does not change; greatly increases

D) moderately lowers; does not change

 

15) As default risk increases, the expected return on corporate bonds ________, and the return becomes ________ uncertain, everything else held constant.

A) increases; less

B) increases; more

C) decreases; less

D) decreases; more

16) As their relative riskiness ________, the expected return on corporate bonds ________ relative to the expected return on default-free bonds, everything else held constant.

A) increases; increases

B) increases; decreases

C) decreases; decreases

D) decreases; does not change

 

17) Which of the following statements are true?

A) A decrease in default risk on corporate bonds lowers the demand for these bonds, but increases the demand for default-free bonds.

B) The expected return on corporate bonds decreases as default risk increases.

C) A corporate bond’s return becomes less uncertain as default risk increases.

D) As their relative riskiness increases, the expected return on corporate bonds increases relative to the expected return on default-free bonds.

 

18) Everything else held constant, if the federal government were to guarantee today that it will pay creditors if a corporation goes bankrupt in the future, the interest rate on corporate bonds will ________ and the interest rate on Treasury securities will ________.

A) increase; increase

B) increase; decrease

C) decrease; increase

D) decrease; decrease

 

19) Bonds with relatively high risk of default are called

A) Brady bonds.

B) junk bonds.

C) zero coupon bonds.

D) investment grade bonds.

 

20) Bonds with relatively low risk of default are called ________ securities and have a rating of Baa (or BBB) and above; bonds with ratings below Baa (or BBB) have a higher default risk and are called ________.

A) investment grade; lower grade

B) investment grade; junk bonds

C) high quality; lower grade

D) high quality; junk bonds

 

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