Which of the Following Statements Are TRUE

question 84

Multiple Choice

Which of the following statements are TRUE?

• A)A decrease in default risk on corporate bonds lowers the demand for these bonds,but increases the demand for default-free bonds.
• B)The expected return on corporate bonds decreases as default risk increases.
• C)A corporate bond's return becomes less uncertain as default risk increases.
• D)As their relative riskiness increases,the expected return on corporate bonds increases relative to the expected return on default-free bonds.

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Definitions:

Convertible Bond

A convertible bond is a type of bond that the holder can convert into a specified number of shares of common stock in the issuing company, usually at certain times during its life.

Common Stock

A type of equity security that represents ownership in a corporation and entitles the holder to vote at shareholder meetings and receive dividends.

Straight-Line Method

A depreciation method that allocates an equal amount of depreciation each year over the useful life of an asset.

Amortization

The process of gradually writing off the initial cost of an intangible asset over its useful life.