Exam 6: The Risk and Term Structure of Interest Rates

Other things being equal,an increase in the default risk of corporate bonds shifts the demand curve for corporate bonds to the ________ and the demand curve for Treasury bonds to the ________.

The segmented markets theory can explain

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

Which of the following statements is true?

If 1-year interest rates for the next five years are expected to be 4,2,5,4,and 5 percent,and the 5-year term premium is 1 percent,than the 5-year bond rate will be

If the yield curve is flat for short maturities and then slopes downward for longer maturities,the liquidity premium theory (assuming a mild preference for shorter-term bonds)indicates that the market is predicting.

If the federal government where to raise the income tax rates,would this have any impact on a state's cost of borrowing funds? Explain.

If the expected path of one-year interest rates over the next five years is 4 percent,5 percent,7 percent,8 percent,and 6 percent,then the expectations theory predicts that today's interest rate on the five-year bond is

The risk that interest payments will not be made,or that the face value of a bond is not repaid when a bond matures is

Everything else held constant,an increase in marginal tax rates would likely have the effect of ________ the demand for municipal bonds,and ________ the demand for U.S.government bonds.

Bonds with relatively low risk of default are called ________ securities and have a rating of Baa (or BBB)and above; bonds with ratings below Baa (or BBB)have a higher default risk and are called ________.

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

-The U-shaped yield curve in the figure above indicates that the inflation rate is expected to