Exam 6: The Structure of Interest Rates

With reference to the data above, what is the default risk premium on 3-year AA-rated corporate bonds?

According to the expectations theory, if the market believes that interest rates are likely to increase in the near future, it would lead to

If interest rates are expected to increase in the future, one would expect to see an upward sloping yield curve.

According to the preferred habitat theory, investors may change their preferred maturity in response to expected yield premiums.

A put option sets a "floor" or minimum price of a bond at the exercise price, which is generally at or above par value.

Which of the following statements about callable bonds is not true?

With reference to the data above, the implied one-year forward rate (expected one-year rate one year from now) on Treasuries is

The preferred habitat theory explains the existence of discontinuities in the yields curve.

A one-year interest rate is 5.50% and a one-year forward rate two years from now is 6.0%. According to the expectations theory, what is the current two-year rate?

Ceteris paribus, the required interest rate of a callable bond will be higher than the interest rate on a convertible bond.

What actions by bond investors, given their expectations of increasing interest rates, result in an upward sloping yield curve?

An investor in the 33 percent tax bracket will buy a 6 percent municipal bond rather than a similarly rated 8.5 percent corporate bond.