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:

Short Rate

The interest rate applied to the shortest duration loans or borrowings, often seen in monetary policy adjustments.

Annual Premium

The total amount paid yearly to keep an insurance policy active.

Collision Deductible

A collision deductible is the out-of-pocket amount a policyholder agrees to pay before their insurance coverage applies to repair vehicle damages in the event of an accident.

Insurance Premiums

Payments made to insurance companies to provide coverage and protect against various risks or damages.