Shaky Company has just issued a five-year bond with a yield of 9%; Stable Company has issued an identical five-year bond, but with a yield of 7%. Why did the market demand a higher return from Shaky?

(Select the best response.)

A.

Companies with poor financials tend to compensate investors for the liquidity risk by issuing bonds with high yields.

B.

Companies with poor financials tend to compensate investors for the default risk by issuing bonds with high yields.

C.

Companies with poor financials tend to compensate investors for the systematic risk by issuing bonds with high yields.

D.

Companies with poor financials tend to compensate investors for the inflation risk by issuing bonds with high yields.