Typical Individuals Have Difficulty Judging the Default Risk of Any

question 22

Multiple Choice

Typical individuals have difficulty judging the default risk of any one company,let alone the thousands of firms that sell bonds in a developed economy.To address this problem,

• A) the price of bonds increases as more information is made available to investors.
• B) borrowing entities rate their own bonds.
• C) individuals should never invest in bonds.
• D) the government assigns ratings of borrowing entities.
• E) private rating agencies evaluate and then grade the default risk of borrowing entities.

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Definitions:

Continuous Budgeting

A process of constantly updating a budget for a set period in the future to reflect changes as they happen.

Safety Stock

Additional inventory held by a company to prevent stockouts, usually due to uncertainties in supply and demand.

Master Budget

A comprehensive financial plan that combines all of the individual budgets related to sales, costs, expenses, assets, and liabilities.

Merchandise Purchases Budget

A financial plan detailing the amount of goods that a retail or wholesale company plans to buy over a certain period to meet anticipated sales.