If the debt payoff amount ([1 + r_L]L) is smaller than the punishment cost of default (cY), a nation will: A) default. B) seek to delay repayment until its interest cost declines. C) repay in full. D) find another lender who will refinance.

Question

Quizplus · Accepted Answer

If the debt payoff amount is smaller than the punishment cost of default, it is in the nation's best interest to repay in full to avoid the higher costs associated with defaulting.

If the Debt Payoff Amount ([1 + RL]L) Is Smaller

If the Debt Payoff Amount ([1 + R_L]L) Is Smaller