When a Company Whose Ability to Repay Its Obligations in Full

question 18

Multiple Choice

When a company whose ability to repay its obligations in full is uncertain borrows funds

• A)it will have to issue debt with longer maturities than would a company with a lower probability of default.
• B)its bonds will sell for higher prices than would the bonds of a company with a lower probability of default.
• C)it must offer investors higher yields to compensate them for the risk they take in buying their bonds or making loans.
• D)it must do so through financial markets rather than through financial intermediaries.

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Definitions:

Flat Affect

A condition where a person displays reduced emotional expressiveness and often speaks in a monotone voice with a blank facial expression.

Depressed Mood

A persistent feeling of sadness, hopelessness, and loss of interest in activities, significantly affecting a person's everyday life.

Major Depressive Disorder

A mental disorder characterized by a sustained feeling of melancholy or apathy towards activities, which notably hampers regular life operations.

Paroxetine

A medication used primarily to treat depression, anxiety disorders, and other mental health conditions, functioning as a selective serotonin reuptake inhibitor (SSRI).