When a Company Whose Ability to Repay Its Obligations in Full

question 95

Multiple Choice

When a company whose ability to repay its obligations in full is uncertain

• A) it will have to issue debt with longer maturities than would a company with a lower probability of default.
• B) its bonds will sell for higher prices than would the bonds of a company with a lower probability of default.
• C) it must offer investors higher yields to compensate them for the risk they take in buying their bonds or making loans.
• D) it must do so through financial markets rather than through financial intermediaries.

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Definitions:

Sequential

Describes processes, events, or things that follow one after the other in a specific order or sequence.

Credible Threats

Declarations or signals that a party intends to inflict harm or loss on another in the event of non-compliance, which are believable and likely to be carried out.

Nash Equilibrium

A concept in game theory where no player can benefit by changing their strategy while the other players keep theirs unchanged.

Repeated Games

A scenario in game theory where the same game (with the same strategy set) is played by players multiple times.