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.

The Obama administration increased the tax on the top income tax bracket from 35% to 39%.Supply and demand analysis predicts the impact of this change was a ________ interest rate on municipal bonds and a ________ interest rate on Treasury bonds,all else the same.

If a corporation begins to suffer large losses,then the default risk on the corporate bond will

Which of the following bonds would have the highest default risk?

In actual practice,short-term interest rates and long-term interest rates usually move together;this is the major shortcoming of the

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.

Over the next three years,the expected path of 1-year interest rates is 4,1,and 1 percent.The expectations theory of the term structure predicts that the current interest rate on 3-year bond is

According to the liquidity premium theory of the term structure

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

If the possibility of a default increases because corporations begin to suffer losses,then the default risk on corporate bonds will ________,and the bonds' returns will become ________ uncertain,meaning that the expected return on these bonds will decrease,everything else held constant.

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

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

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

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

If you have a very low tolerance for risk,which of the following bonds would you be least likely to hold in your portfolio?

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

If the yield curve has a mild upward slope,the liquidity premium theory (assuming a mild preference for shorter-term bonds)indicates that the market is predicting

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 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

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