If the Probability of a Bond Default Increases Because Corporations

question 108

Multiple Choice

If the probability of a bond default increases because corporations begin to suffer large losses,then the default risk on corporate bonds will ________ and the expected return on these bonds will ________,everything else held constant.

• A)decrease;increase
• B)decrease;decrease
• C)increase;increase
• D)increase;decrease

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Definitions:

Consumer Surplus

The difference between what consumers are willing to pay for a good or service versus what they actually pay.

Producer Surplus

The difference between what producers are willing to accept for a good versus what they actually receive, indicating economic benefit.

Export Sector

The segment of an economy's industry involved in producing goods or services for sale in foreign countries.

Consumer Surplus

The difference between the maximum price consumers are willing to pay and the market price they actually pay.