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Market A deals in low-risk securities with an average interest rate of 5%. Market B deals in high-risk securities with an average interest rate of 7%. Suddenly there is a financial crisis and the economy enters recession.
Before the recession, the risk premium for securities in Market A over securities in Market B was ____________ .
As a result of the recession, one would expect the demand for securities in Market A to _____________ and interest rates to _____________ .
A. There was no risk premium; rise; fall
B. 2%; rise; fall
C. 2%; fall; rise
D. There was no risk premium; fall; rise
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