Exam 5: The Term and Risk Structure of Interest Rates

Which of the following financial institutions is likely to have a preferred habitat in long-term securities?

The assumption that prices for short-term and long-term securities are determined independently is the basis for the __________ approach to explaining the term structure.

The term structure of interest rates provides a framework for analyzing securities of the same

A bond has a face value of $1,000 and an annual coupon rate of 6 percent. The yield to maturity of this bond is 5 percent, and the bond has 2 years remaining until maturity. Based on this information, this bond's duration is __________ years.

Proponents of the preferred habitat theory of term structure assume that a sharp reduction in the supply of one-year securities will

Relative to a bond with a shorter maturity, a bond with a longer maturity has greater

The interrelationship between similar securities is not a focus of the

A municipal bond selling for $1,000 pays the holder $80 per year. If the bondholder pays a 25 percent income tax rate, the after-tax yield is

Which theory of the term structure is usually criticized for underestimating the substitutability of different maturities of securities?

An investor pays 20 percent of his income in taxes and purchases a $1,000 corporate bond yielding 10 percent. The after-tax yield on this bond is

The fact that yields on short-term securities fluctuate more over the course of the business cycle supports which theory of the term structure?

Assume that the yield on long-term U.S. government bonds rises. The yield on corporate bonds with the same maturity will __________, because investors will substitute __________ for __________.

If the yield on short-term securities is greater than the yield on comparable long-term securities, the yield curve will have a