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

Question

Quizplus · Accepted Answer

Both statements are true. An increase in default risk on corporate bonds makes them less attractive to investors, leading to a decrease in demand and shifting the demand curve to the left. Conversely, as investors seek safer investments, the demand for Treasury bonds, which are considered risk-free, increases, shifting their demand curve to the right.

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