the economics of money, banking, and financial markets

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11. 
    

    If the possibility of a default increases because corporations begin to suffer losses, then the
    default risk on corporate bonds will ____, and the bonds' returns will become ____
    uncertain, meaning that the expected return on these bonds will decrease, everything else held
    constant.
    A) increase; less
    B) increase; more
    C) decrease; less
    D) decrease; more
    Answer: B
    Diff: 3 Type: MC Page Ref: 114
    Skill: Applied
    Objective List: 6.1 Describe how default risk, liquidity, and tax considerations affect interest
    rates

    
    


12. 
    

    Other things being equal, an increase in the default risk of corporate bonds shifts the demand
    curve for corporate bonds to the ____ and the demand curve for Canada bonds to the
    ____.
    A) right; right
    B) right; left
    C) left; right
    D) left; left
    Answer: C
    Diff: 1 Type: MC Page Ref: 114
    Skill: Applied
    Objective List: 6.1 Describe how default risk, liquidity, and tax considerations affect interest
    rates

    
    


13. 
    

    An increase in the riskiness of corporate bonds will ____ the price of corporate bonds
    and ____ the price of Canada bonds, everything else held constant.
    A) increase; increase
    B) reduce; reduce
    C) reduce; increase
    D) increase; reduce
    Answer: C
    Diff: 1 Type: MC Page Ref: 114
    Skill: Applied
    Objective List: 6.1 Describe how default risk, liquidity, and tax considerations affect interest
    rates