PS_CH6 - Chapter 6 Problem Set ECO 21000 Money and Banking September 2015 1 The risk that interest payments will not be made or that the face value of a

PS_CH6 - Chapter 6 Problem Set ECO 21000 Money and Banking...

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Chapter 6 Problem Set ECO 21000: Money and Banking September 2015 1.The risk that interest payments will not be made, or that the face value of a bond is not repaid when abond matures is A)interest rate risk.B)inflation risk.C)moral hazard.D)default risk. 2. Which of the following bonds are considered to be default-risk free? 3. If the probability of a bond default increases because corporations begin to suer largelosses, then the default risk on corporate bonds willand the expected return onthese bonds will, everything else held constant. 4. An increase in default risk on corporate bondsthe demand for these bonds, butthe demand for default-free bonds, everything else held constant. 1
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