Exam 7: The Risk and Term Structure of Interest Rates

Assume the Expectation Hypothesis regarding the term structure of interest rates is correct. Then, if the current one-year interest rate is 4% and the two-year interest rate is 6%, then investors are expecting:

Any theory of the yield curve must be able to explain what three general conditions?

The risk spread:

Under the Liquidity Premium Theory a flat yield curve implies:

Under the expectations hypothesis, if expectations are for lower inflation in the future than what it currently is, the yield curve's slope:

The default-risk premium:

If the federal government replaced the current income tax with a national sales tax, the price of:

The term structure of interest rates:

Why do economists pay particular attention to inverted yield curves?

Which of the following would be most likely to earn an AAA rating from Standard & Poor's?

What does the risk structure of interest rates predict about the yield on bonds of the same maturities?

What impact should an economic slowdown have on the risk structure of interest rates?

Does the Expectations Hypothesis allow for people to have a

The addition of the Liquidity Premium Theory to the Expectations Hypothesis allows us to explain why:

The default-risk premium:

The yield curve for U.S. Treasury securities allows us to draw the following conclusions, except that:

Assume the Expectations Hypothesis regarding the term structure of interest rates is correct. If the current one-year interest rate is 3% and the expected one-year interest rate is 5%, then the current two-year interest rate should be:

Municipal bonds are issued by:

The yield on a tax-exempt bond:

Once a bond rating is assigned, it: