The Increase in Yield Spreads in Late 2008 and Early

question 68

Multiple Choice

The increase in yield spreads in late 2008 and early 2009 indicated that

• A) Credit risk premiums decreased
• B) Market risk premiums increased
• C) Investors are more confident of the future cash flows of bonds
• D) Non-investment grade bonds are less risky
• E) Government bonds are no longer a risk free investment

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Definitions:

Spontaneous Recovery

A phenomenon in psychology where previously extinguished responses re-emerge after a pause without further conditioning.

Lab Experiment

A research study conducted in a controlled environment where variables can be manipulated to observe their effect on various outcomes.

Behavior Modification

The direct and systematic application of principles of learning to change maladaptive or unwanted behaviors into more desirable behaviors.

Reciprocal Determinism

A theory proposed by Albert Bandura that suggests human behavior, personal factors, and the environment continually interact and influence each other.