The default of the Penn Central Railroad in the early 1970s
A)led indirectly to a fall in the price of U.S. Treasury securities.
B)strongly affected the market for municipal bonds.
C)resulted from the lack of liquidity in the U.S. Treasury bill market.
D)resulted in an increase in the default-risk premium in the commercial paper market.

Question

Quizplus · Accepted Answer

The default of the Penn Central Railroad led to increased concerns about the creditworthiness of borrowers, which in turn increased the default-risk premium in the commercial paper market as investors demanded higher returns for taking on additional risk.

The Default of the Penn Central Railroad in the Early