Exam 5: The Term and Risk Structure of Interest Rates

Compared with long-term securities, the prices of short-term securities are always

If the yield on short-term securities is the same as the yield on comparable long-term securities, the yield curve will have a

A bond has a duration of 4 years and a price of $1,000. The yield to maturity of the bond just changed from 5 percent to 7 percent. The new price of the bond should be

Currently, 20-year Treasury bonds have a yield of 7 percent, while one-year Treasury bills have a yield of 5 percent. Based on this information, the yield curve is

Two-year securities are yielding 6 percent, and comparable one-year securities are yielding 8 percent. According to the pure expectations theory, the market expects next year's comparable one-year securities to yield

Commercial banks are likely to

If all future expected short-term interest rates are equal to the current short-term interest rate, the expectations theory predicts that the yield curve would be

If one-year securities are yielding 5 percent, but the market anticipates that rates for one-year securities will rise to 7 percent, then according to the expectations theory, current two-year securities should be yielding

According to pure expectations theory, the yield curve should on average be

The supply of a particular security appears to influence the term structure only

Which of the following accounts for differences in the yield to maturity on U.S. government bonds with the same maturity?

Observations of the yield curve suggest that when interest rates are high and investors expect interest rates to fall, the yield curve will have a(n)

Everything else being equal, most investors prefer __________ securities, while most bond issuers prefer to issue __________ securities.

A comprehensive measure of a bond's maturity that takes into account the timing of both coupon and principal payments is

In general the lower the yield to maturity of a bond, the

Which of the following will have the highest yield at any point in time?

When interest rates are relatively low, investors generally expect interest rates to __________. Thus, investors prefer to hold __________ securities

One-year securities are currently yielding 8 percent. You expect one-year securities to yield 10 percent next year. Currently, two-year securities are yielding 9.5 percent. Given this situation, portfolio managers would __________ two-year securities, pushing their yield __________.

When interest rates are relatively high, investors generally expect interest rates to __________. Thus, investors prefer to hold __________ securities.

In the long run, the yield curve tends to be