Exam 7: The Risk and Term Structure of Interest Rates

In 2002 and 2003, the financial markets were hit by many corporate accounting scandals. Discuss these scandals and the impact they would have not only in terms of a flight to quality, but also in terms of the faith that people place in bond rating agencies.

Which of the following assigns widely followed bond ratings?

If the yield curve is flat, using liquidity premium theory, what do you know about the expected future short-term interest rate?

If the Federal Reserve announces an easing of monetary policy and this move was not expected:

Describe the concept of flight to quality in terms of the Russian government default of August 1998.

Tax-exempt bonds:

The two best known bond rating services are:

The risk premium that investors associate with a bond increases with all of the following except:

Why can't the Expectations Hypothesis stand alone as an adequate theory to explain yield curves?

The Expectations Hypothesis assumes:

When the growth rate of the economy slows we would expect:

Under the liquidity premium theory, if investors become less certain about future monetary policy, the yield curve should:

Any theory of the term structure of interest rates needs to explain each of the following, except:

Which fact about the term structure is the Expectations Theory unable to explain?

U.S. Treasury securities are considered to carry no risk spread because:

If an economy is experiencing rapid economic growth, explain what you would expect to happen to the yield curve and why?

Which of the following statements pertaining to the yield curve is not true?

Under the Liquidity Premium Theory, if investors expect short-term interest rates to remain constant, the yield curve should:

Holding risk constant, an investor earning 4% from a tax-exempt bond who is in a 20% tax bracket would be indifferent between that bond and:

Taxes play an important role in bond returns because: