If a company gets concessions from labor in union negotiations, one would expect a(n) _____ in yields on its bonds due to an increase in
A) increase; default risk.
B) decrease; default risk.
C) increase; liquidity.
D) decrease; liquidity.

Question

Quizplus · Accepted Answer

When a company secures concessions from labor in union negotiations, it typically means reduced labor costs and potentially improved profitability or financial stability. This reduction in costs can lead to a decrease in the company's default risk, as it may be in a better position to meet its debt obligations. Lower default risk makes the company's bonds more attractive to investors, which can lead to a decrease in yields on its bonds as the price of the bonds increases.

If a Company Gets Concessions from Labor in Union Negotiations