Exam 6: The Structure of Interest Rates

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With reference to the data above, the default risk premium on the 90-day commercial paper above is

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An upward sloping yield curve indicates that security investors expect future interest rates to _____ and security prices to ______.

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Yield difference in Treasury securities of varied maturities may be explained by

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List the five basic factors which explain the differences in interest rates on different securities at any point in time.

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Default risk premiums are usually smaller during periods of high economic growth.

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Consider a yield curve that has taken into consideration both the expectations theory and the liquidity premium theory. Assume the yield curve is initially downward sloping. If liquidity premium theory is no longer important, the yield curve you would expect to see would be:

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31 Yield differences between two securities may be explained by differences in

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Bonds are called speculative grade or junk bonds if their Standard & Poor's rating is

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Bond A is not putable; bond B is putable. Investors will require a lower yield on bond __ and will pay ____ for the bond.

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Putable bonds offer higher yields than similar non-putable bonds

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A two-year interest rate is 7% and a one-year forward rate one year from now is 8%. According to the expectations theory, what is the current one-year rate?

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Which of the following statements is true?

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Federal Agency securities have higher yields than similar Treasury securities because they

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According to the expectations theory, what is the one-year forward rate three years from now if three and four-year spot rates are 5.50% and 5.80%, respectively?

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Expected lower rates of inflation will lead to an upward sloping yield curve.

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A descending yield curve forecasts higher short-term rates in the future.

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What shapes of the yield curve can be explained by each of the theories of the term structure of interest rates?

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Callable bonds have higher market yields than otherwise similar noncallable bonds.

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According to the expectation theory

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An issuer of a bond is more likely to exercise a call option on the bond after an increase in interest rates.

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