Question
In: Economics
Which of the following statements is CORRECT? Select one: If the stock becomes riskier, its price...
Which of the following statements is CORRECT?
Select one:
If the stock becomes riskier, its price increases.
When the yield curve is strictly downward sloping, the term spread must be negative.
Legal tender is the provision that shields owners of a corporation from losing more than what they have invested in the firm.
The market capitalization of a corporation is the total market value of its stocks and bonds.
Solutions
Expert Solution
Answer: 2nd option
If the yield curve is downward slopped, it is inverted yield curve. Term spread indicates difference of interest rates between different maturities. In case of inverted yield curve the term spread becomes negative, because the long-term interest rates become lower than the short-term interest rates.
Other options are not correct:
1st option: price is low in case of riskier stock.
3rd option: legal tender is not a provision but officially accepted currency.
4th option: market capitalization is based on only stock but not bonds.
Rahul Sunny answered 2 years agoRelated Solutions
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