Which of the Following Statements Is FALSE

question 115

Multiple Choice

Which of the following statements is FALSE?

• A)Investors pay less for bonds with credit risk than they would for an otherwise identical default-free bond.
• B)The yield to maturity of a defaultable bond is equal to the expected return of investing in the bond.
• C)The risk of default,which is known as the credit risk of the bond,means that the bond's cash flows are not known with certainty.
• D)For corporate bonds,the issuer may default-that is,it might not pay back the full amount promised in the bond certificate.

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Definitions:

Price Level

Refers to the average of current prices across the entire spectrum of goods and services produced in the economy.

Real Value

Reflects the purchasing power of an amount of money, considering inflation, and contrasts with nominal value, which does not take inflation into account.

Money Holdings

The quantity of money an individual or entity holds as a store of value and medium of exchange.

Classical Dichotomy

The theoretical separation of nominal variables (such as money supply and prices) from real variables (like output and employment) in the economy, suggesting that nominal variables do not affect real output in the long run.