Potential buyers of ABC Corporation bonds are concerned about ABC Corporation declaring bankruptcy.Potential buyers of XYZ Corporation bonds are not concerned that XYZ Corporation may declare bankruptcy.Which of the following statements is correct?
A)Other things equal,the interest rate on XYZ Corporation bonds will be high relative to the interest rate on ABC Corporation bonds.
B)An ABC Corporation bond must have a longer term than an XYZ Corporation.
C)XYZ Corporation bonds carry less default risk than do ABC Corporation bonds.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

The statement indicates that potential buyers of XYZ Corporation bonds are not concerned about the company declaring bankruptcy, while potential buyers of ABC Corporation bonds are worried about this. This implies that XYZ Corporation bonds carry less default risk than ABC Corporation bonds. Therefore, choice C is the correct answer. Choice A cannot be determined based on the given information as interest rates are affected by various factors, not just default risk. Choice B is not supported by any evidence in the statement.

Potential Buyers of ABC Corporation Bonds Are Concerned About ABC