As their relative riskiness ________,the expected return on corporate bonds ________ relative to the expected return on default-free bonds,everything else held constant.
A)increases;increases
B)increases;decreases
C)decreases;decreases
D)decreases;does not change

Question

Quizplus · Accepted Answer

As the relative riskiness of corporate bonds increases, investors demand a higher expected return to compensate for the higher risk. This causes the expected return on corporate bonds to increase relative to the expected return on default-free bonds. Therefore, choice B is the correct answer.

As Their Relative Riskiness ________,The Expected Return on Corporate Bonds