If investors are pessimistic about the future, the spread between yields on high-grade and low-grade bonds

Question

Quizplus · Accepted Answer

When investors are pessimistic about the future, they tend to avoid risky investments and seek safe investments, leading to increased demand for high-grade bonds. This increase in demand causes the yield on high-grade bonds to decrease, while the yield on low-grade bonds increases due to decreased demand. As a result, the spread between the yields on high-grade and low-grade bonds widens, indicating a higher risk premium, making A the correct choice.

If Investors Are Pessimistic About the Future, the Spread Between