Suppose That Many Corporations Begin Issuing New Bonds

question 175

Multiple Choice

Suppose that many corporations begin issuing new bonds.Everything else being equal, what is most likely to happen to the interest rate?

• A)It will increase.
• B)It will decrease.
• C)It will not change.
• D)It will vary according to a random walk.

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Definitions:

Default Risk

The risk that a borrower will not make the contractual interest or principal payments on their debt obligations.

Revenue Collection

The process of gathering funds collected from sales, services, taxes, or other sources by an organization or government.

Short-Term Financing Cost

The interest or other costs associated with borrowing funds for a short duration, typically less than one year.

Standardized Products

Goods or services produced to a uniform specification that ensures consistency and compatibility across different uses and customers.