Exam 7: The Risk and Term Structure of Interest Rates

If a one-year bond currently yields 4% and is expected to yield 6% next year, the liquidity premium theory suggests the yield today on a two-year bond will be:

Which of the following assigns widely followed bond ratings?

The risk spread is:

Which of the following assigns widely followed bond ratings?

A proposed increase in the federal income tax rates may actually be viewed favorably by many mayors of cities because:

Which of the following statements pertaining to the yield curve is not true?

Suppose that interest rates are expected to remain unchanged over the next few years. However, there is a risk premium for longer-term bonds. According to the liquidity premium theory, the yield curve should be:

Which of the following is true?

According to the Expectations Theory of the term structure, if interest rates are expected to be 2%, 2%, 4%, and 5% over the next four years, which yield is the closest to the yield on a three-year bond today?

The yield on a tax-exempt bond:

The usually upward sloping yield curve indicates that long-term bonds have higher yields than short-term bonds. Why is this?

An increased risk of a financial crisis in the euro area should cause the:

If the yield curve is flat, using liquidity premium theory, what do you know about the expected future short-term interest rate?

If a bond's rating improves, we would expect:

When we compare the graphs of GDP growth over time to the corresponding risk spread on Baa bonds compared to 10-year U.S. Treasury bonds, what relationship can be inferred?

In the fall of 1998 we saw an increase in the risk spread because:

The yield on a 30-year U.S. Treasury security is 6.5%; the yield on a 2-year U.S. Treasury bond is 4.0%. This data indicate:

The terrorist attack on the World Trade Center on September 11, 2001:

Describe the concept of flight to quality in terms of the Russian government default of August 1998.

We would expect the risk spread between Baa bonds and U.S. Treasury securities of the same maturities to: