Default Risk Arises from the Fact That

question 39

Multiple Choice

Default risk arises from the fact that

• A)borrowers differ in their ability to repay in full the principal and interest required by a loan agreement.
• B)the bond price drops when interest rates rise.
• C)it is inherently riskier to wait for a capital gain than to receive an immediate interest payment.
• D)interest rates are far more likely to go up than to go down.

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Definitions:

Labor Taxes

Financial obligations placed on workers or their employers, calculated as a portion of the salaries paid to employees.

Consumer Surplus

The differentiation between the amount consumers are ready to disburse for a product or service and the amount they actually disburse.

Producer Surplus

The difference between the amount that a producer is actually paid for a good compared to the minimum amount they would be willing to accept for the good.

Elasticity of Demand

A measure of how much the demand for a product changes in response to a change in the price of that product.