Exam 6: The Structure of Interest Rates

Default risk premiums vary _______ with the ________ of the security.

According to the expectations theory of the term structure of interest rates,

How do bond options such as a call, put, and convertibility influence the yields on securities relative to bonds without such options?

The market segmentation theory allows for the possibility of a discontinuous yield curve.

With reference to the data above, which security below did the market view as having the greatest default risk?

Commercial banks, savings and loan associations, and finance companies traditionally have better profits when

The expectations theory can explain why the yield curve slopes upward most of the time.

The yield differentials between an AAA-rated corporate bond and an otherwise similar BBB-rated corporate bond may be explained by

The market segmentation theory assumes that investors are risk-neutral.

The major determinant of the bond ratings assigned by Moody's, Standard and Poor, or Fitch is

An investor is more likely to exercise a put option on a bond after

A downward sloping yield curve indicates that future short-term rates are expected to ______ and outstanding security prices will _______.

With reference to the data above, the yield curve slopes _______, indicating the market expectation of ______ future short-term rates.

Historically, high default premiums have been associated with

Treasury and corporate security yields may be combined when plotting a yield curve.

The major reason that municipal bonds have lower yields than corporate bonds is that, as a class, municipal debt has less marketability than corporate debt.

If three-year securities are yielding 6% and two-year securities are yielding 5.5%, future short-term rates are expected to ______, and outstanding security prices are expected to ______.

If three-year securities are yielding 6% and two-year securities are yielding 5.5%, what is the expected one-year rate two years from now as implied by the two actual rates above?

According to expectations theory, an investor who believes that interest rates are likely to decrease in the near future would

A conversion option gives a valuable right to a bond's _______; a put option gives a valuable right to a bond's _______.