(I)An increase in default risk on corporate bonds shifts the demand curve for corporate bonds to the right.
(II)An increase in default risk on corporate bonds shifts the demand curve for Treasury bonds to the left.
A) (I) is true, (II) false.
B) (I) is false, (II) true.
C) Both are true.
D) Both are false.

Question

Quizplus · Accepted Answer

An increase in default risk on corporate bonds makes them less attractive to investors, shifting the demand curve for corporate bonds to the left, not the right. Conversely, an increase in default risk on corporate bonds may make Treasury bonds more attractive due to their perceived safety, potentially shifting the demand curve for Treasury bonds to the right, not the left.

(I)An Increase in Default Risk on Corporate Bonds Shifts the Demand