Question

An increase in the riskiness of corporate bonds will _____ the yield on corporate bonds and _____ the yield on Treasury securities, everything else held constant.

a. increase; increase
b. reduce; reduce
c. increase; reduce
d. reduce; increase

Answer 1

c. increase; reduce

Step-by-step explanation:

The correct answer is:

c. increase; reduce

An increase in the riskiness of corporate bonds will increase the yield on corporate bonds. This is because investors will demand a higher return to compensate for the increased risk of default.

On the other hand, an increase in the riskiness of corporate bonds will reduce the yield on Treasury securities. This is because investors will view Treasu