Exam 6: The Risk and Term Structure of Interest Rates

When the Treasury bond market becomes less liquid, other things equal, the demand curve for corporate bonds shifts to the ________ and the demand curve for Treasury bonds shifts to the ________.

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

The risk premium on corporate bonds reflects the fact that corporate bonds have a higher default risk and are ________ U.S. Treasury bonds.

Everything else held constant, if income tax rates were lowered, then

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

Everything else held constant, if the federal government were to guarantee today that it will pay creditors if a corporation goes bankrupt in the future, the interest rate on corporate bonds will ________ and the interest rate on Treasury securities will ________.

If a corporation begins to suffer large losses, then the default risk on the corporate bond will

The Bush tax cut reduced the top income tax bracket from 39% to 35% over a ten-year period. Supply and demand analysis predicts the impact of this change was a ________ interest rate on municipal bonds and a ________ interest rate on Treasury bonds.

If a higher inflation is expected, what would you expect to happen to the shape of the yield curve? Why?

According to the liquidity premium theory of the term structure, a downward sloping yield curve indicates that short-term interest rates are expected to

According to the expectations theory of the term structure

A plot of the interest rates on default-free government bonds with different terms to maturity is called

The preferred habitat theory of the term structure is closely related to the

If you have a very low tolerance for risk, which of the following bonds would you be least likely to hold in your portfolio?

Which of the following bonds are considered to be default-risk free?

Which of the following statements are true?

-The steeply upward sloping yield curve in the figure above indicates that

According to this theory of the term structure, bonds of different maturities are not substitutes for one another.

Risk premiums on corporate bonds tend to ________ during business cycle expansions and ________ during recessions, everything else held constant.

According to the segmented markets theory of the term structure