DURING BAD ECONOMIC PERIODS CREDIT SPREADS RISE AND DURING GOOD ECONOMIC PERIODS CREDIT SPREADS FALL

8. A is correct. During bad economic periods credit spreads rise and during good economic

periods credit spreads fall. Risky bonds benefit more from narrowing of credit spreads than

risk-free bonds. Hence, lower-rated bonds benefit more than higher-rated bonds when credit

spreads narrow. Section 5.2. LO.f.