Exam 6: The Risk and Term Structure of Interest Rates

-If investors expect interest rates to fall significantly in the future,the yield curve will be inverted.This means that the yield curve has a ________ slope.

As their relative riskiness ________,the expected return on corporate bonds ________ relative to the expected return on default-free bonds,everything else held constant.

Which of the following long-term bonds has the highest interest rate?

An increase in default risk on corporate bonds ________ the demand for these bonds,but ________ the demand for default-free bonds,everything else held constant.

If the expected path of 1-year interest rates over the next five years is 2 percent,4 percent,1 percent,4 percent,and 3 percent,the expectations theory predicts that the bond with the lowest interest rate today is the one with a maturity of

Everything else held constant,the interest rate on municipal bonds rises relative to the interest rate on Treasury securities when

Risk premiums on corporate bonds tend to ________ during business cycle expansions and ________ during recessions,everything else held constant.

The additional incentive that the purchaser of a Treasury security requires to buy a long-term security rather than a short-term security is called the

Everything else held constant,abolishing all taxes will

An increase in the riskiness of corporate bonds will ________ the yield on corporate bonds and ________ the yield on Treasury securities,everything else held constant.

-The steeply upward sloping yield curve in the figure above indicates that ________ interest rates are expected to ________ in the future.

The spread between the interest rates on Baa corporate bonds and U.S.government bonds is very large during the Great Depression years 1930-1933.Explain this difference using the bond supply and demand analysis.

An inverted yield curve

Which of the following statements is true?

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

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

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.

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

Everything else held constant,if income tax rates were lowered,then

A key assumption in the segmented markets theory is that bonds of different maturities