As Default Risk Decreases,the Expected Return on Corporate Bonds ________,And

question 27

Multiple Choice

As default risk decreases,the expected return on corporate bonds ________,and the return becomes ________ uncertain,everything else held constant.

• A)increases;less
• B)increases;more
• C)decreases;less
• D)decreases;more

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Definitions:

Credit Ratings

An assessment of the creditworthiness of a borrower in general terms or with respect to a particular debt or financial obligation.

Nonconvertible Bonds

Bonds that cannot be converted into the issuing company's stock and must be repaid in cash at maturity.

Warrants

Derivative securities that provide the right, but not the obligation, to buy shares of a company at a specified price before the warrant expires.

Convertible Securities

Convertible securities are financial instruments, like bonds or preferred shares, that can be converted into a predetermined number of common stock or equity shares.