Exam 6: The Risk and Term Structure of Interest Rates

An increase in the riskiness of corporate bonds will ________ the price of corporate bonds and ________ the price of Canada bonds, everything else held constant.

If income tax rates were lowered, then ________.

-The mound-shaped yield curve in the figure above indicates that short-term interest rates are expected to ________.

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

According to the expectations theory of the term structure, the interest rate on a long-term bond will equal the ________ of the short-term interest rates that people expect to occur over the life of the long-term bond.

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

A particularly attractive feature of the ________ is that it tells you what the market is predicting about future short-term interest rates by just looking at the slope of the yield curve.

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 ________.

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

Bonds with no default risk are called ________.