If a Company's Sales Begin to Fall Off So That

question 4

Multiple Choice

If a company's sales begin to fall off so that it is now more likely to default on its bonds than financial markets had previously believed, the yields on the company's bonds will

• A)rise to compensate investors for this greater risk.
• B)fall because the company will no longer be able to afford to pay as much interest.
• C)fall as investors insist on higher prices for the bonds to compensate them for the greater risk.
• D)be unchanged; once issued yields on bonds do not change.

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