If the government makes it easier to buy its bonds online, the risk premia for corporate bonds will
A) increase.
B) decrease.
C) stay the same.
D) cannot be determined.

Question

Quizplus · Accepted Answer

When the government makes it easier to buy its bonds online, this could lead to an increase in demand for government bonds. As government bonds are generally considered safer than corporate bonds, investors might shift some of their investments from corporate bonds to government bonds. This shift would increase the risk premium on corporate bonds because investors would require a higher return to compensate for the perceived higher risk compared to the now more accessible and possibly more attractive government bonds.

If the Government Makes It Easier to Buy Its Bonds