If a Corporation Offers Greater Protection to a Given Class

question 32

True/False

If a corporation offers greater protection to a given class of bondholders, it must raise the interest rate on its bonds to make them more attractive.
In keeping with risk/return, greater protection lowers risk, therefore investors cannot expect as great a return as if that protection were absent.

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Definitions:

American Cold War

The period of geopolitical tension and ideological conflict between the United States and the Soviet Union after World War II, characterized by threats, propaganda, and other measures short of open warfare.

Capitalism

An economic system where trade, industry, and the means of production are largely or entirely privately owned and operated for profit.

Colonizers

Individuals or groups who establish control over foreign lands and people, often exploiting, displacing, or exterminating the indigenous populations in the process.

Soviet Communism

A form of government and ideology based on the theories of Karl Marx and Vladimir Lenin that was practiced in the Soviet Union, characterized by state control of the economy and a one-party totalitarian regime.