If a corporation's earnings rise,then the default risk on its bonds will ________ and the equilibrium interest rate on these bonds will ________.
A) increase; decrease
B) decrease; decrease
C) increase; increase
D) decrease; increase

Question

Quizplus · Accepted Answer

If a corporation's earnings rise, the default risk on its bonds will decrease because the corporation has more profit to meet its debt obligations. As a result, the equilibrium interest rate on these bonds will also decrease since investors will require less compensation for the lower default risk.

If a Corporation's Earnings Rise,then the Default Risk on Its