Researchers Have Found a Positive Relationship Between Default Spread and Stock

question 58

Multiple Choice

Researchers have found a positive relationship between default spread and stock returns in the long run because a large default spread implies

• A) a high risk premium and higher expected returns.
• B) a high risk premium and lower expected returns.
• C) a low risk premium and higher expected returns.
• D) a low risk premium and lower expected returns.
• E) None of the above.

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Definitions:

Gathering Information

The process of collecting data or facts from various sources to increase knowledge or make informed decisions.

Hypothesis

A proposed explanation for a phenomenon that can be tested.

Theory

An organized set of observations to describe, explain, and predict a phenomenon.

Cohorts

Groups of individuals who share a common characteristic or experience within a defined period, often used in research to compare changes over time.