When a company whose ability to repay its obligations in full is uncertain
A) it will have to issue debt with longer maturities than would a company with a lower probability of default.
B) its bonds will sell for higher prices than would the bonds of a company with a lower probability of default.
C) it must offer investors higher yields to compensate them for the risk they take in buying their bonds or making loans.
D) it must do so through financial markets rather than through financial intermediaries.

Question

Quizplus · Accepted Answer

When a company's ability to repay its obligations in full is uncertain, investors are more likely to demand higher yields for the risk they take in buying their bonds or making loans. This is because the higher the risk of default, the higher the compensation investors will require to compensate them for that risk.

When a Company Whose Ability to Repay Its Obligations in Full