Question 1

Blue chip bonds tend to have

Accepted Answer

A)  higher yields. 
B)  higher risk premia. 
C)  both of the above. 
D)  neither of the above. 
A)  higher yields. 
B)  higher risk premia. 
C)  both of the above. 
D)  neither of the above.

Question 2

Which of the following factors could explain difference in yields on bonds with the same time to maturity?

Accepted Answer

A)  the risk that the issuer will not make future payments 
B)  differences in the taxation of the bonds 
C)  ease of finding buyers and sellers of a bond 
D)  all of the above 
A)  the risk that the issuer will not make future payments 
B)  differences in the taxation of the bonds 
C)  ease of finding buyers and sellers of a bond 
D)  all of the above

Question 3

No government agency has ever defaulted on its bonds in the United States.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following factors could explain difference in yields on bonds with the same time to maturity?

Accepted Answer

A)  interest rate risk 
B)  credit risk 
C)  liquidity 
D)  none of the above 
A)  interest rate risk 
B)  credit risk 
C)  liquidity 
D)  none of the above

Question 5

If a company gets concessions from labor in union negotiations, one would expect a(n) _____ in the risk premia on its bonds due to a shift in the ____ its bonds.

Accepted Answer

A)  increase; demand for 
B)  decrease; demand for 
C)  increase; supply of 
D)  decrease; supply of 
A)  increase; demand for 
B)  decrease; demand for 
C)  increase; supply of 
D)  decrease; supply of

Question 6

A CCC bond has higher interest rate risk than a BBB bond.

Accepted Answer

A) True 
 B)False

Question 7

The U.S. Federal government has never defaulted on its bonds.

Accepted Answer

A) True 
 B)False

Question 8

A change in the risk of a bond affects the bond's risk premium.

Accepted Answer

A) True 
 B)False

Question 9

What is the difference between risk and term structure?

Accepted Answer

Risk structure explains differ

Question 10

Default risk is measured by the

Accepted Answer

A)  term premium. 
B)  risk premium. 
C)  credit premium. 
D)  none of the above. 
A)  term premium. 
B)  risk premium. 
C)  credit premium. 
D)  none of the above.

Question 11

A change in the relative return of a bond affects the bond's risk premium.

Accepted Answer

A) True 
 B)False

Question 12

An increase in expected inflation has an ambiguous effect on the risk premium of corporate bonds.

Accepted Answer

A) True 
 B)False

Question 13

If S&P upgrades a corporate bond its yield will _____ and its risk premium will

Accepted Answer

A)  rise; rise. 
B)  rise; fall. 
C)  fall; rise. 
D)  fall; fall. 
A)  rise; rise. 
B)  rise; fall. 
C)  fall; rise. 
D)  fall; fall.

Question 14

If a company gets concessions from labor in union negotiations, one would expect a(n) _____ in yields on its bonds due to an increase in

Accepted Answer

A)  increase; default risk. 
B)  decrease; default risk. 
C)  increase; liquidity. 
D)  decrease; liquidity. 
A)  increase; default risk. 
B)  decrease; default risk. 
C)  increase; liquidity. 
D)  decrease; liquidity.

Question 15

The yield curve indicates a possible future recession if it is

Accepted Answer

A)  upward sloping. 
B)  flat. 
C)  downward sloping. 
D)  none of the above. 
A)  upward sloping. 
B)  flat. 
C)  downward sloping. 
D)  none of the above.

Question 16

The recent increase in U.S. government debt could lead to a(n) _____ in yields due to an increase in

Accepted Answer

A)  increase; default risk. 
B)  decrease; default risk. 
C)  increase; liquidity. 
D)  decrease; liquidity. 
A)  increase; default risk. 
B)  decrease; default risk. 
C)  increase; liquidity. 
D)  decrease; liquidity.

Question 17

Ceteris paribus, a blue chip bond has a lower risk premium than other bonds.

Accepted Answer

A) True 
 B)False

Question 18

Risk structure models the yields of bonds

Accepted Answer

A)  with the same times to maturity. 
B)  with different times to maturity. 
C)  both of the above. 
D)  neither of the above. 
A)  with the same times to maturity. 
B)  with different times to maturity. 
C)  both of the above. 
D)  neither of the above.

Question 19

Municipal bonds tend to have lower yields than other bonds, ceteris paribus, due to

Accepted Answer

A)  higher default risk. 
B)  lower taxes. 
C)  higher liquidity. 
D)  none of the above. 
A)  higher default risk. 
B)  lower taxes. 
C)  higher liquidity. 
D)  none of the above.

Question 20

An increase in expected inflation increases the risk premium of corporate bonds.

Accepted Answer

A) True 
 B)False

Exam 6: The Economics of Interest-Rate Spreads and Yield Curves

Blue chip bonds tend to have

Which of the following factors could explain difference in yields on bonds with the same time to maturity?

No government agency has ever defaulted on its bonds in the United States.

Which of the following factors could explain difference in yields on bonds with the same time to maturity?

If a company gets concessions from labor in union negotiations, one would expect a(n) _____ in the risk premia on its bonds due to a shift in the ____ its bonds.

A CCC bond has higher interest rate risk than a BBB bond.

The U.S. Federal government has never defaulted on its bonds.

A change in the risk of a bond affects the bond's risk premium.

What is the difference between risk and term structure?

Default risk is measured by the

A change in the relative return of a bond affects the bond's risk premium.

An increase in expected inflation has an ambiguous effect on the risk premium of corporate bonds.

If S&P upgrades a corporate bond its yield will _____ and its risk premium will

If a company gets concessions from labor in union negotiations, one would expect a(n) _____ in yields on its bonds due to an increase in

The yield curve indicates a possible future recession if it is

The recent increase in U.S. government debt could lead to a(n) _____ in yields due to an increase in

Ceteris paribus, a blue chip bond has a lower risk premium than other bonds.

Risk structure models the yields of bonds

Municipal bonds tend to have lower yields than other bonds, ceteris paribus, due to

An increase in expected inflation increases the risk premium of corporate bonds.

The Financial System

Money

Interest Rates

The Economics of Interest-Rate Fluctuations

Rational Expectations, Efficient Markets, and the Valuation of Corporate Equities

Financial Structure, Transaction Costs, and Asymmetric Information

Bank Management

Innovation and Structure in Banking and Finance

The Economics of Financial Regulation

Financial Derivatives

Financial Crises: Causes and Consequences

Central Bank Form and Function

The Money Supply Process and the Money Multipliers

Monetary Policy Tools

Monetary Policy Targets and Goals

Foreign Exchange

International Monetary Regimes

Money Demand

Is-Lm

Is-Lm in Action

Aggregate Supply and Demand and the Growth Diamond

Monetary Policy Transmission Mechanisms

Inflation and Money

Rational Expectations Redux: Monetary Policy Implications

Filters

If a company gets concessions from labor in union negotiations, one would expect a(n) _ in the risk premia on its bonds due to a shift in the its bonds.