A decrease in default risk on corporate bonds ________ the demand for these bonds,and ________ 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

When default risk on corporate bonds decrease, their demand increases because investors feel more confident about receiving their payments. This also decreases the demand for default-free bonds, which offer low yields due to the absence of default risk. Therefore, option A is the correct answer.

A Decrease in Default Risk on Corporate Bonds ________ the Demand