Which of the Following Statements Is FALSE

question 115

Multiple Choice

Which of the following statements is FALSE?

• A)Investors pay less for bonds with credit risk than they would for an otherwise identical default-free bond.
• B)The yield to maturity of a defaultable bond is equal to the expected return of investing in the bond.
• C)The risk of default,which is known as the credit risk of the bond,means that the bond's cash flows are not known with certainty.
• D)For corporate bonds,the issuer may default-that is,it might not pay back the full amount promised in the bond certificate.

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Definitions:

Kinked-Demand Curve

A demand curve that has a distinct bend or "kink" at a certain price level, often used to describe price stability in oligopolistic markets.

Highly Elastic

Refers to a market condition where the demand or supply for a product responds very significantly to changes in its price.

Highly Inelastic

Describes a situation where the quantity demanded or supplied of a good changes by a very small amount in response to changes in price.

Monopolistically Competitive

A market structure characterized by many firms selling similar but not identical products, with some control over prices.