Exam 5: How Do Risk and Term Structure Affect Interest Rates?

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.

A bond rating of Aa or AA would mean that the quality of the bond is

A bond with default risk will always have a ________ risk premium,and an increase in its default risk will raise the risk premium.

(I)If a corporate bond becomes less liquid,the interest rate on the bond will fall. (II)If a corporate bond becomes less liquid,the interest rate on Treasury bonds will fall.

According to the expectations theory of the term structure,

The risk structure of interest rates describes the relationship between the interest rates of different bonds with the same maturities.

According to the expectations theory of the term structure,

Which of the following statements are true?

________ are investment advisory firms that rate the quality of corporate and municipal bonds in terms of probability of default.

If the expected path of one-year interest rates over the next five years is 1 percent,2 percent,3 percent,4 percent,and 5 percent,then the pure expectations theory predicts that the bond with the highest interest rate today is the one with a maturity of

According to the liquidity premium theory of the term structure,

(I)The risk premium widens as the default risk on corporate bonds increases. (II)The risk premium widens as corporate bonds become less liquid.

If income tax rates were lowered,then

What are the differences among the expectations,market segmentation,and liquidity premium theories for the term structure of interest rates?

According to the market segmentation theory of the term structure,

Holding everything else the same,if a corporation's earnings rise,then the default risk on its bonds will ________ and the expected return on those bonds will ________.

The interest rates on bonds of different maturities tend to move together over time.

The spread between interest rates on low-quality corporate bonds and U.S.government bonds ________ during the Great Depression.

A decrease in marginal tax rates would likely have the effect of ________ the demand for municipal bonds and ________ the demand for U.S.government bonds.

In 2013,President Obama increased tax by essentially repealing the Bush tax cuts for high-income tax payers. How does this affect the after-tax expected return on tax-free municipal bonds relative to Treasury bonds?