Which of the Following Is True

question 14

Multiple Choice

Which of the following is true

• A) The default probability per year for a company always increases as we look further ahead
• B) The default probability per year for a company always decreases as we look further ahead
• C) Sometimes A is true and sometimes B is true
• D) The default probability per year is roughly constant for most companies

---

Definitions:

Bond Issue

The process by which a company, government, or other organization raises funds by issuing bonds to investors, who essentially lend money to the issuer in exchange for periodic interest payments and the return of principal at maturity.

Weight of Debt

A component of a firm's capital structure that quantifies the proportion of total capital represented by debt.

Weighted Average Cost of Capital

A calculation of a company's cost of capital in which each category of capital is proportionately weighted, used to evaluate the cost of funding projects.

Bond Issue

The process by which a company or government raises funds by selling bonds to investors, which then are obliged to pay back with interest.