Question 1

A company that retains a high bond rating during a recession in which many other companies see their bond ratings cut will experience

Accepted Answer

A)  an increased flow of funds into the market for its securities. 
B)  an increased demand for its securities, resulting in a higher expected return. 
C)  a decreased demand for its securities, resulting in a lower expected return. 
D)  a decreased flow of funds into the market for its securities. 
A)  an increased flow of funds into the market for its securities. 
B)  an increased demand for its securities, resulting in a higher expected return. 
C)  a decreased demand for its securities, resulting in a lower expected return. 
D)  a decreased flow of funds into the market for its securities.

Question 2

Which interest rate is typically the lowest?

Accepted Answer

A)  3-month Treasury bills 
B)  2-year Treasury notes 
C)  10-year Treasury bonds 
D)  30-year Treasury bonds 
A)  3-month Treasury bills 
B)  2-year Treasury notes 
C)  10-year Treasury bonds 
D)  30-year Treasury bonds

Question 3

Currently,a three-year Treasury note pays 4.75%.Assuming that your tax rate is 20%,what is the minimum interest rate that you would you need to earn on a tax-free municipal bond in order to buy it instead?

Accepted Answer

A)  0.95% 
B)  3.8% 
C)  5.7% 
D)  15.25% 
A)  0.95% 
B)  3.8% 
C)  5.7% 
D)  15.25%

Question 4

Which of the following is TRUE of the segmented markets theory?

Accepted Answer

A)  It assumes that borrowers have particular periods for which they want to borrow. 
B)  It assumes that lenders always lend for short periods. 
C)  It provides a good explanation for why yield curves usually slope upward. 
D)  It assumes that instruments with different maturities are perfect substitutes. 
A)  It assumes that borrowers have particular periods for which they want to borrow. 
B)  It assumes that lenders always lend for short periods. 
C)  It provides a good explanation for why yield curves usually slope upward. 
D)  It assumes that instruments with different maturities are perfect substitutes.

Question 5

The additional interest that investors require to buy a long-term bond instead of a sequence of short-term bonds is known as the

Accepted Answer

A)  risk premium. 
B)  default premium. 
C)  term premium. 
D)  segmented premium. 
A)  risk premium. 
B)  default premium. 
C)  term premium. 
D)  segmented premium.

Question 6

The segmented markets theory

Accepted Answer

A)  explains upward-sloping yield curves as resulting from the demand for long-term bonds being high relative to the demand for short-term bonds. 
B)  explains upward-sloping yield curves as resulting from the demand for long-term bonds being low relative to the demand for short-term bonds. 
C)  explains upward-sloping yield curves as resulting from the favorable tax treatment of long-term bonds. 
D)  is unable to account for upward-sloping yield curves. 
A)  explains upward-sloping yield curves as resulting from the demand for long-term bonds being high relative to the demand for short-term bonds. 
B)  explains upward-sloping yield curves as resulting from the demand for long-term bonds being low relative to the demand for short-term bonds. 
C)  explains upward-sloping yield curves as resulting from the favorable tax treatment of long-term bonds. 
D)  is unable to account for upward-sloping yield curves.

Question 7

A one-year bond currently pays 5% interest.It's expected that it will pay 4.5% next year and 4% the following year.The two-year term premium is 0.2% while the three-year term premium is 0.35%.What is the interest rate on a three-year bond according to the liquidity premium theory?

Accepted Answer

A)  4.5% 
B)  4.68% 
C)  4.85% 
D)  5.05% 
A)  4.5% 
B)  4.68% 
C)  4.85% 
D)  5.05%

Question 8

For state residents,interest on most bonds issued by their state government is

Accepted Answer

A)  exempt from state and federal income taxes. 
B)  exempt from state, but not from federal, income taxes. 
C)  exempt from federal, but not from state, income taxes. 
D)  subject to both state and federal income taxes. 
A)  exempt from state and federal income taxes. 
B)  exempt from state, but not from federal, income taxes. 
C)  exempt from federal, but not from state, income taxes. 
D)  subject to both state and federal income taxes.

Question 9

The risk structure of interest rates refers to

Accepted Answer

A)  the amount of additional interest necessary to compensate savers for the greater risk of default on some bonds. 
B)  the relationship among the interest rates on similar bonds with different maturities. 
C)  the relationship among the interest rates on bonds with the same maturity. 
D)  the amount of additional yield necessary to compensate savers for the lesser liquidity of some bonds. 
A)  the amount of additional interest necessary to compensate savers for the greater risk of default on some bonds. 
B)  the relationship among the interest rates on similar bonds with different maturities. 
C)  the relationship among the interest rates on bonds with the same maturity. 
D)  the amount of additional yield necessary to compensate savers for the lesser liquidity of some bonds.

Question 10

According to the liquidity premium theory,

Accepted Answer

A)  investors prefer longer to shorter maturities. 
B)  investors prefer shorter to longer maturities. 
C)  investors are indifferent between short and long maturities. 
D)  investors are more interested in the tax treatment of bonds than they are in the liquidity of bonds. 
A)  investors prefer longer to shorter maturities. 
B)  investors prefer shorter to longer maturities. 
C)  investors are indifferent between short and long maturities. 
D)  investors are more interested in the tax treatment of bonds than they are in the liquidity of bonds.

Question 11

During the financial crisis of 2007-2009

Accepted Answer

A)  mortgage-backed securities became more liquid. 
B)  information costs of mortgage-backed securities rose. 
C)  information costs of mortgage-backed securities declined. 
D)  the tax treatment of mortgage-backed securities was changed. 
A)  mortgage-backed securities became more liquid. 
B)  information costs of mortgage-backed securities rose. 
C)  information costs of mortgage-backed securities declined. 
D)  the tax treatment of mortgage-backed securities was changed.

Question 12

Which of the following is the highest bond rating assigned by Moody's Investors Service?

Accepted Answer

A)  Aaa 
B)  A 
C)  B 
D)  Baa 
A)  Aaa 
B)  A 
C)  B 
D)  Baa

A company that retains a high bond rating during a recession in which many other companies see their bond ratings cut will experience

Which interest rate is typically the lowest?

Currently,a three-year Treasury note pays 4.75%.Assuming that your tax rate is 20%,what is the minimum interest rate that you would you need to earn on a tax-free municipal bond in order to buy it instead?

Which of the following is TRUE of the segmented markets theory?

The additional interest that investors require to buy a long-term bond instead of a sequence of short-term bonds is known as the

The segmented markets theory

A one-year bond currently pays 5% interest.It's expected that it will pay 4.5% next year and 4% the following year.The two-year term premium is 0.2% while the three-year term premium is 0.35%.What is the interest rate on a three-year bond according to the liquidity premium theory?

For state residents,interest on most bonds issued by their state government is

The risk structure of interest rates refers to

According to the liquidity premium theory,

During the financial crisis of 2007-2009

Which of the following is the highest bond rating assigned by Moody's Investors Service?

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I- the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters

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

A company that retains a high bond rating during a recession in which many other companies see their bond ratings cut will experience

Which interest rate is typically the lowest?

Currently,a three-year Treasury note pays 4.75%.Assuming that your tax rate is 20%,what is the minimum interest rate that you would you need to earn on a tax-free municipal bond in order to buy it instead?

Which of the following is TRUE of the segmented markets theory?

The additional interest that investors require to buy a long-term bond instead of a sequence of short-term bonds is known as the

The segmented markets theory

A one-year bond currently pays 5% interest.It's expected that it will pay 4.5% next year and 4% the following year.The two-year term premium is 0.2% while the three-year term premium is 0.35%.What is the interest rate on a three-year bond according to the liquidity premium theory?

For state residents,interest on most bonds issued by their state government is

The risk structure of interest rates refers to

According to the liquidity premium theory,

During the financial crisis of 2007-2009

Which of the following is the highest bond rating assigned by Moody's Investors Service?

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Beyond Commercial Banks: Shadow Banks and Nonbank Financial Institutions

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I- the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters