Question

In: Economics

Which of the following statements is CORRECT?Select one:a. When the yield curve is strictly...

Which of the following statements is CORRECT?

Select one:

a. When the yield curve is strictly downward sloping, the term spread must be positive.

b. A flight to quality during the recession increases the default risk premium.

c. The market capitalization of a corporation is the total market value of its common stocks.

d. Legal tender is the provision that shields owners of a corporation from losing more than what they have invested in the firm.

Solutions

Expert Solution

Answer = correct option is B

A flight to quality during the recession increase default of risk premium

Other option are incorrect because -

  • In option A, when the yield curve is Downward sloping, the term spread must be negative and not positive
  • In option C ,The market capitalisation of a corporation is the total market value of its outstanding stocks and not comman stocks
  • In option D, limited liability is the provision that shields owners of corporation from losing more than what they have invested in the firm. So legal tender is incorrect

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