(I)The Risk Premium Widens as the Default Risk on Corporate

question 92

Multiple Choice

(I) The risk premium widens as the default risk on corporate bonds increases.
(II) The risk premium widens as corporate bonds become less liquid.

• A) (I) is true, (II) false.
• B) (I) is false, (II) true.
• C) Both are true.
• D) Both are false.

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Definitions:

Dedicated Resources

Assets or inputs allocated specifically for a particular project, task, or goal without being diverted elsewhere.

Costs

The monetary value of resources consumed or spent to achieve a particular objective.

Benefits

Advantages or positive outcomes that result from a particular action or policy.

Free Rider Problem

A situation where individuals consume a public good without contributing to its cost, benefitting from others' contributions.