Question 1

When the Treasury bond market becomes less liquid,other things equal,the demand curve for corporate bonds shifts to the ________ and the demand curve for Treasury bonds shifts to the ________.

Accepted Answer

A)  right;right
B)  right;left
C)  left;right
D)  left;leftE) B) and C)
F) All of the above

Question 2

According to the liquidity premium theory of the term structure,a slightly upward sloping yield curve indicates that short-term interest rates are expected to

Accepted Answer

A)  rise in the future.
B)  remain unchanged in the future.
C)  decline moderately in the future.
D)  decline sharply in the future.E) B) and C)
F) A) and B)

Question 3

A plot of the interest rates on default-free government bonds with different terms to maturity is called

Accepted Answer

A)  a risk-structure curve.
B)  a default-free curve.
C)  a yield curve.
D)  an interest-rate curve.E) None of the above
F) B) and C)

Question 4

When yield curves are steeply upward sloping

Accepted Answer

A)  long-term interest rates are above short-term interest rates.
B)  short-term interest rates are above long-term interest rates.
C)  short-term interest rates are about the same as long-term interest rates.
D)  medium-term interest rates are above both short-term and long-term interest rates.E) A) and B)
F) A) and C)

Question 5

A decrease in the liquidity of corporate bonds,other things being equal,shifts the demand curve for corporate bonds to the ________ and the demand curve for Treasury bonds shifts to the ________.

Accepted Answer

A)  right;right
B)  right;left
C)  left;left
D)  left;rightE) A) and B)
F) A) and C)

Question 6

The risk premium on corporate bonds reflects the fact that corporate bonds have a higher default risk and are ________ U.S. Treasury bonds.

Accepted Answer

A)  less liquid than
B)  less speculative than
C)  tax-exempt unlike
D)  lower-yielding thanE) All of the above
F) B) and D)

Question 7

The collapse of the subprime mortgage market increased the spread between Baa and default-free U.S. Treasury bonds. This is due to

Accepted Answer

A)  a reduction in risk.
B)  a reduction in maturity.
C)  a flight to quality.
D)  a flight to liquidity.E) C) and D)
F) None of the above

Question 8

Which of the following statements are TRUE?

Accepted Answer

A)  A decrease in default risk on corporate bonds lowers the demand for these bonds,but increases the demand for default-free bonds.
B)  The expected return on corporate bonds decreases as default risk increases.
C)  A corporate bond's return becomes less uncertain as default risk increases.
D)  As their relative riskiness increases,the expected return on corporate bonds increases relative to the expected return on default-free bonds.E) A) and B)
F) None of the above

Question 9

Everything else held constant,if the tax-exempt status of municipal bonds were eliminated,then

Accepted Answer

A)  the interest rates on municipal bonds would still be less than the interest rate on Treasury bonds.
B)  the interest rate on municipal bonds would equal the rate on Treasury bonds.
C)  the interest rate on municipal bonds would exceed the rate on Treasury bonds.
D)  the interest rates on municipal,Treasury,and corporate bonds would all increase.E) B) and D)
F) None of the above

Question 10

A decrease in the riskiness of corporate bonds will ________ the price of corporate bonds and ________ the price of Treasury bonds,everything else held constant.

Accepted Answer

A)  increase;increase
B)  reduce;reduce
C)  reduce;increase
D)  increase;reduceE) A) and C)
F) A) and D)

Question 11

Bonds with relatively high risk of default are called

Accepted Answer

A)  Brady bonds.
B)  junk bonds.
C)  zero coupon bonds.
D)  investment grade bonds.E) All of the above
F) B) and D)

Question 12

If a higher inflation is expected,what would you expect to happen to the shape of the yield curve? Why?

Accepted Answer

The yield curve should have a steep upwa...

Question 13

Which of the following securities has the lowest interest rate?

Accepted Answer

A)  junk bonds
B)  U) S. Treasury bonds
C)  investment-grade bonds
D)  corporate Baa bondsE) B) and C)
F) A) and C)

Question 14

A(n) ________ in the liquidity of corporate bonds will ________ the price of corporate bonds and ________ the yield on corporate bonds,all else equal.

Accepted Answer

A)  increase;increase;decrease
B)  increase;decrease;decrease
C)  decrease;increase;increase
D)  decrease;decrease;decreaseE) A) and B)
F) A) and C)

Question 15

Differences in ________ explain why interest rates on Treasury securities are not all the same.

Accepted Answer

A)  risk
B)  liquidity
C)  time to maturity
D)  tax characteristicsE) A) and D)
F) B) and C)

Question 16

Use the following figure to answer the question : 
-The mound-shaped yield curve in the figure above indicates that the inflation rate is expected to

Accepted Answer

A)  remain constant in the near-term and fall later on.
B)  fall moderately in the near-term and rise later on.
C)  rise moderately in the near-term and fall later on.
D)  remain unchanged in the near-term and rise later on.E) B) and D)
F) B) and C)

Question 17

Use the following figure to answer the question :

-The U-shaped yield curve in the figure above indicates that short-term interest rates are expected to

Accepted Answer

A)  rise in the near-term and fall later on.
B)  fall sharply in the near-term and rise later on.
C)  fall moderately in the near-term and rise later on.
D)  remain unchanged in the near-term and rise later on.E) A) and B)
F) C) and D)

Question 18

Three factors explain the risk structure of interest rates

Accepted Answer

A)  liquidity,default risk,and the income tax treatment of a security.
B)  maturity,default risk,and the income tax treatment of a security.
C)  maturity,liquidity,and the income tax treatment of a security.
D)  maturity,default risk,and the liquidity of a security.E) A) and D)
F) B) and D)

Question 19

The preferred habitat theory of the term structure is closely related to the

Accepted Answer

A)  expectations theory of the term structure.
B)  segmented markets theory of the term structure.
C)  liquidity premium theory of the term structure.
D)  the inverted yield curve theory of the term structure.E) A) and B)
F) B) and C)

Question 20

The ________ of the term structure of interest rates states that the interest rate on a long-term bond will equal the average of short-term interest rates that individuals expect to occur over the life of the long-term bond,and investors have no preference for short-term bonds relative to long-term bonds.

Accepted Answer

A)  segmented markets theory
B)  expectations theory
C)  liquidity premium theory
D)  separable markets theoryE) A) and B)
F) A) and C)

Exam 6: The Risk and Term Structure of Interest Rates

Use the following figure to answer the question : -The mound-shaped yield curve in the figure above indicates that the inflation rate is expected to

Correct Answer
verified

A decrease in the riskiness of corporate bonds will the price of corporate bonds and the price of Treasury bonds,everything else held constant.

Correct Answer
verified

Differences in ________ explain why interest rates on Treasury securities are not all the same.

Correct Answer
verified

The collapse of the subprime mortgage market increased the spread between Baa and default-free U.S. Treasury bonds. This is due to

Correct Answer
verified

A plot of the interest rates on default-free government bonds with different terms to maturity is called

Correct Answer
verified

Three factors explain the risk structure of interest rates

Correct Answer
verified

When the Treasury bond market becomes less liquid,other things equal,the demand curve for corporate bonds shifts to the and the demand curve for Treasury bonds shifts to the .

Correct Answer
verified

A decrease in the liquidity of corporate bonds,other things being equal,shifts the demand curve for corporate bonds to the and the demand curve for Treasury bonds shifts to the .

Correct Answer
verified

Everything else held constant,if the tax-exempt status of municipal bonds were eliminated,then

Correct Answer
verified

When yield curves are steeply upward sloping

Correct Answer
verified

Use the following figure to answer the question : -The U-shaped yield curve in the figure above indicates that short-term interest rates are expected to

Correct Answer
verified

According to the liquidity premium theory of the term structure,a slightly upward sloping yield curve indicates that short-term interest rates are expected to

Correct Answer
verified

If a higher inflation is expected,what would you expect to happen to the shape of the yield curve? Why?

Correct Answer
verified
The yield curve should have a steep upwa...
View Answer

The preferred habitat theory of the term structure is closely related to the

Correct Answer
verified

Which of the following securities has the lowest interest rate?

Correct Answer
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Correct Answer
verified

A(n) in the liquidity of corporate bonds will the price of corporate bonds and the yield on corporate bonds,all else equal.

Correct Answer
verified

Which of the following statements are TRUE?

Correct Answer
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The risk premium on corporate bonds reflects the fact that corporate bonds have a higher default risk and are ________ U.S. Treasury bonds.

Correct Answer
verified

Bonds with relatively high risk of default are called

Correct Answer
verified

Exam 6: The Risk and Term Structure of Interest Rates

Use the following figure to answer the question : -The mound-shaped yield curve in the figure above indicates that the inflation rate is expected to

Correct AnswerverifiedShow Answer

A decrease in the riskiness of corporate bonds will ________ the price of corporate bonds and ________ the price of Treasury bonds,everything else held constant.

Correct AnswerverifiedShow Answer

Differences in ________ explain why interest rates on Treasury securities are not all the same.

Correct AnswerverifiedShow Answer

The collapse of the subprime mortgage market increased the spread between Baa and default-free U.S. Treasury bonds. This is due to

Correct AnswerverifiedShow Answer

A plot of the interest rates on default-free government bonds with different terms to maturity is called

Correct AnswerverifiedShow Answer

Three factors explain the risk structure of interest rates

Correct AnswerverifiedShow Answer

When the Treasury bond market becomes less liquid,other things equal,the demand curve for corporate bonds shifts to the ________ and the demand curve for Treasury bonds shifts to the ________.

Correct AnswerverifiedShow Answer

A decrease in the liquidity of corporate bonds,other things being equal,shifts the demand curve for corporate bonds to the ________ and the demand curve for Treasury bonds shifts to the ________.

Correct AnswerverifiedShow Answer

Everything else held constant,if the tax-exempt status of municipal bonds were eliminated,then

Correct AnswerverifiedShow Answer

When yield curves are steeply upward sloping

Correct AnswerverifiedShow Answer

Use the following figure to answer the question : -The U-shaped yield curve in the figure above indicates that short-term interest rates are expected to

Correct AnswerverifiedShow Answer

According to the liquidity premium theory of the term structure,a slightly upward sloping yield curve indicates that short-term interest rates are expected to

Correct AnswerverifiedShow Answer

If a higher inflation is expected,what would you expect to happen to the shape of the yield curve? Why?

Correct AnswerverifiedThe yield curve should have a steep upwa...View AnswerShow Answer

The preferred habitat theory of the term structure is closely related to the

Correct AnswerverifiedShow Answer

Which of the following securities has the lowest interest rate?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A(n) ________ in the liquidity of corporate bonds will ________ the price of corporate bonds and ________ the yield on corporate bonds,all else equal.

Correct AnswerverifiedShow Answer

Which of the following statements are TRUE?

Correct AnswerverifiedShow Answer

The risk premium on corporate bonds reflects the fact that corporate bonds have a higher default risk and are ________ U.S. Treasury bonds.

Correct AnswerverifiedShow Answer

Bonds with relatively high risk of default are called

Correct AnswerverifiedShow Answer

Correct Answer
verified

A decrease in the riskiness of corporate bonds will the price of corporate bonds and the price of Treasury bonds,everything else held constant.

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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When the Treasury bond market becomes less liquid,other things equal,the demand curve for corporate bonds shifts to the and the demand curve for Treasury bonds shifts to the .

Correct Answer
verified

A decrease in the liquidity of corporate bonds,other things being equal,shifts the demand curve for corporate bonds to the and the demand curve for Treasury bonds shifts to the .

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
The yield curve should have a steep upwa...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified

A(n) in the liquidity of corporate bonds will the price of corporate bonds and the yield on corporate bonds,all else equal.

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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