If a Corporation Begins to Suffer Large Losses, Then the Default

question 99

Multiple Choice

If a corporation begins to suffer large losses, then the default risk on the corporate bond will ________, everything else held constant.

• A) increase and the bond's return will become more uncertain, meaning the expected return on the corporate bond will fall
• B) increase and the bond's return will become less uncertain, meaning the expected return on the corporate bond will fall
• C) decrease and the bond's return will become less uncertain, meaning the expected return on the corporate bond will fall
• D) decrease and the bond's return will become less uncertain, meaning the expected return on the corporate bond will rise

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Definitions:

Overhead Cost

Indirect costs associated with production, not directly tied to a specific product, such as utilities and rent for production facilities.

Activity-Based Costing

An accounting method that allocates overhead and indirect costs to specific activities, providing more accurate product cost information.

Activity Rate

A measure used in cost accounting to allocate costs to products or services based on the amount of an activity they consume.

Production Units

The number of units produced during a specific period, often used as a measure of productivity or for inventory tracking.