If the Possibility of a Default Increases Because Corporations Begin

question 57

Multiple Choice

If the possibility of a default increases because corporations begin to suffer losses,then the default risk on corporate bonds will ________,and the bonds' returns will become ________ uncertain,meaning that the expected return on these bonds will decrease,everything else held constant.

• A)increase;less
• B)increase;more
• C)decrease;less
• D)decrease;more

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Definitions:

Limited Partner

An investor in a partnership whose liability is limited to the amount of the investment and who does not participate in day-to-day management.

Management Rights

The powers and authority given to managers or executives to make decisions and direct operations within an organization.

Limited Liability

A legal principle that limits an investor's loss in a business venture to the amount of capital they have invested, protecting personal assets from business debts.

Certificate of Limited Partnership

A legal document registered with a state authority to form a limited partnership, outlining key details and compliance.