The Risk Premium on Corporate Bonds Becomes Smaller If

question 68

Multiple Choice

The risk premium on corporate bonds becomes smaller if

• A) the riskiness of corporate bonds increases.
• B) the liquidity of corporate bonds increases.
• C) the liquidity of corporate bonds decreases.
• D) the riskiness of corporate bonds decreases.
• E) either B or D of the above occur.

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Definitions:

Excise Tax

A tax levied on specific goods or services, such as alcohol, tobacco, and gasoline, usually to discourage their use or to generate revenue.

Negative Externality

A cost that affects a party who did not choose to incur it, often associated with the consumption or production of goods and services.

Price

The sum required, expected, or disbursed as a purchase price for an item.

Government-Provided Goods

Goods and services offered to the public by the government that might not be provided by the market or would be underprovided, such as public parks and national defense.