An increase in default risk on corporate bonds ________ the demand for these bonds,but ________ the demand for default-free bonds,everything else held constant.
A)increases;lowers
B)lowers;increases
C)does not change;greatly increases
D)moderately lowers;does not change

Question

Quizplus · Accepted Answer

An increase in default risk on corporate bonds makes investors more averse to risk, which lowers the demand for these bonds. Conversely, investors will seek default-free bonds as a safer alternative, which increases the demand for such bonds. Therefore, choice B is the most accurate.

An Increase in Default Risk on Corporate Bonds ________ the Demand