Exam 7: The Risk and Term Structure of Interest Rates

A company that continues to have strong profit performance during an economic downturn when many other companies are suffering losses or failing should:

The reason for the increase in inflation risk over time is due to the fact that:

When the yield curve is downward sloping:

Please use the graphs to show what happens to the risk (yield) differential in each situation and why.

We would expect the risk spread between Baa bonds and U.S. Treasury securities of the same maturities to:

A proposed increase in the federal income tax rates may actually be viewed favorably by many mayors of cities because:

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

The yield on a 30-year U.S. Treasury security is 6.5%; the yield on a 2-year U.S. Treasury bond is 4.0%. This data:

How did asset backed commercial paper (ABCP) rollover risk contribute to the financial crisis of 2007-2009?

Imagine a scandal that finds the officers of bond rating agencies have been taking bribes to inflate the rating of specific bonds. This should:

According to the Expectations Hypothesis, if investors believed that, for a given holding period, the average of the expected future short-term yields was greater than the long-term yield for the holding period, they would act so as to:

Explain why many mayors of cities facing the need to borrow for infrastructure improvements, may not look favorably on a large federal income tax rate reduction?

Why do yield curves usually slope upward?

How would you expect the mayors of most U.S. cities to respond to a proposed significant reduction in U.S. income taxes?

When the Russian government defaulted on its bonds in August 1998:

If an investor wants to compare commercial paper to a corresponding risk-free investment, which security would he/she use and why?

We would expect the relationship between the risk spread on Baa bonds and U.S. Treasury securities of similar maturities to:

Municipal bonds are usually purchased by:

As GDP rises the:

During economic slowdowns why would you expect the risk premium to increase the most between U.S. Treasury bonds and junk bonds?