Exam 5: The Risk Structure and Term Structure of Interest Rates

Why did some economists and policymakers think ratings agencies had a conflict of interest leading up to the Financial Crisis of 2007-2009?

The default risk premium is measured

All of the following are names for bonds receiving low ratings EXCEPT

Investors often pay professional analysts to gather and monitor information on the creditworthiness of borrowers because

Suppose that savers become much more willing to purchase a certain type of municipal bond.The result will be that the bond's price will

Default risk arises from the fact that

The expectations theory

A one-year bond has an interest rate of 0.2% and is expected to rise to 0.5% next year and 1.1% in two years.The term premium for a two-year bond is 0.1% and for a three-year bond is 0.25%.What are the interest rates on a two-year bond and three-year bond according to the liquidity premium theory?

Table 5.1 1 year 2 years 3 years 1.50\% 2.25\% 3.25\% Table 5.1 shows the interest rates for Treasury securities of different maturities. Assume that the liquidity premium theory is correct. -Refer to Table 5.1 On this day,what did investors expect the interest rate to be on the one-year Treasury bill in two years if the term premium on a two-year Treasury note is 0.25% and the term premium on a three-year Treasury note is 0.75%?

Which of the following is NOT true of the yield curve for U.S.Treasury securities?

If lenders anticipate no changes in liquidity,information costs,and tax differences,the yield on a risky security should be

Many savers are willing to accept a lower interest rate on municipal bonds than on comparable instruments because

In late 2008,the average risk premium rose because

In 2016,as investors became more concerned with the default risk of bonds issued by the governments of Greece and Portugal relative to the default risk on bonds issued by the governments of Germany,France,and the Netherlands,the price of bonds issued by Germany,France,and the Netherlands would have most likely ________ and the yield on those bonds would have most likely ________.

The liquidity premium theory holds that investors

Under the expectations theory,an upward-sloping yield curve indicates that investors expect future short-term rates to

The investment strategy of borrowing at a low short-term interest rate and using the borrowed funds to invest at a higher long-term interest rate is called

What is a primary reason for the yield on 3-month Treasury bills being low during recessions?

U)S.Treasury securities

The default risk premium fluctuates mainly