If a Company Reports That It Is Going to Have

question 8

Multiple Choice

If a company reports that it is going to have a difficult time meeting its debt obligations, you would expect the P_today:

• A)to fall since the risk-free return will rise.
• B)to rise since the D_today will likely fall.
• C)to fall since the risk premium will likely rise.
• D)to remain about the same until the D_today actually changes.

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Definitions:

Long-Run Aggregate Supply

The total output of goods and services that an economy can produce when it is using all of its resources efficiently and at full employment.

Vertical

In economics, this term typically refers to a market structure where companies provide different, but related, products or services at various stages of production.

Money Supply

The total financial resources in an economy at a particular time, made up of cash, coins, and the holdings in checking and savings accounts.

Inflation

An increase in the average cost of goods and services, resulting in a drop in the value of purchasing power.