All Else Equal,the Smaller the Default Risk

question 2

Multiple Choice

All else equal,the smaller the default risk:

• A) the higher the face value of the bond.
• B) the higher the price of the bond.
• C) the lower the price of the bond.
• D) the lower the face value of the bond.
• E) the higher the interest rate of the bond.

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Definitions:

Regression Line

A straight line that describes how a response variable Y changes as an explanatory variable X changes, used in linear regression.

Least Squares Regression Line

A straight line that minimizes the sum of the squared differences between the observed values and the values predicted by the line.

Estimated Value

An approximation of a quantity based on available information or statistical methods.

Observations

Individual data points or items recorded during an experiment or survey.