Exam 6: The Risk and Term Structure of Interest Rates

If the expected path of one-year interest rates over the next five years is 4 percent, 5 percent, 7 percent, 8 percent, and 6 percent, then the expectations theory predicts that today's interest rate on the five-year bond is

When yield curves are steeply upward sloping,

As default risk increases, the expected return on corporate bonds ________, and the return becomes ________ uncertain, everything else held constant.

Over the next three years, the expected path of 1-year interest rates is 4, 1, and 1 percent. The expectations theory of the term structure predicts that the current interest rate on 3-year bond is

-The steeply upward sloping yield curve in the figure above indicates that ________ interest rates are expected to ________ in the future.

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

According to the segmented markets theory of the term structure

If bonds with different maturities are perfect substitutes, then the ________ on these bonds must be equal.

A(n) ________ in the riskiness of corporate bonds will ________ the price of corporate bonds and ________ the yield on corporate bonds, all else equal.

Which of the following long-term bonds has the highest interest rate?

According to the liquidity premium theory of the term structure

Everything else held constant, the interest rate on municipal bonds rises relative to the interest rate on Treasury securities when

U.S. government bonds have no default risk because

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

Bonds with no default risk are called

If 1-year interest rates for the next three years are expected to be 4, 2, and 3 percent, and the 3-year term premium is 1 percent, than the 3-year bond rate will be

The spread between interest rates on low quality corporate bonds and U.S. government bonds

A decrease in the riskiness of corporate bonds will ________ the yield on corporate bonds and ________ the yield on Treasury securities, everything else held constant.

According to the liquidity premium theory of the term structure

Which of the following statements are true?