Exam 3: Structure of Interest Rates

Assume that maturity markets are completely segmented. If the Treasury issues a large amount of long-term Treasury bonds to finance the budget deficit, this would place ____ pressure on _________-term yields.

According to expectations theory, the sudden expectation of lower interest rates in the future will cause investors to provide a ____ supply of short-term funds and a ____ supply of long-term funds.

Assume that the Treasury experiences a large decrease in the budget deficit and purchases a large number of short-term Treasury securities (Treasury bills or T-bills). This action will ____ the supply of T-bills in the market and place ____ pressure on the yield of T-bills.

If a yield curve is upward sloping, the investment strategy of buying long-term securities, then selling them after a short period (say, one year)is called

If research showed that anticipation about future interest rates was the only important factor for all investors in choosing short-term or long-term securities, this would support the argument made by the

Investment-grade bonds are bonds that are rated as Caa or better by Moody's and as CCC or better by Standard & Poor's.

The theory of the term structure of interest rates, which states that investors and borrowers choose securities with maturities that satisfy their forecasted cash needs, is the

Assume that the current yield on one-year securities is 6 percent, and that the yield on a two-year security is 7 percent. If the liquidity premium on a two-year security is 0.4 percent, then the one-year forward rate is

Because interest rates may vary significantly across countries at a given point in time, investors do not monitor the term structures of interest rates in foreign countries unless they are interested in investing in a particular foreign country.

The annualized yield on a two-year security is below the annualized one-year interest rate. The one-year forward rate as of one year ahead is ______________.

Assume that a yield curve is influenced by interest rate expectations and a liquidity premium. Assume the yield curve is initially flat. If liquidity suddenly was no longer important, the yield curve would now have a ____ (assuming no other changes).

Which of the following established the Office of Credit Ratings and mandated that credit rating agencies establish internal controls to make their ratings process more transparent?

According to the segmented markets theory, if most investors suddenly preferred to invest in short-term securities and most borrowers suddenly preferred to issue long-term securities, there would be

Vaughn Corporation is considering the issue of commercial paper and would like to know the yield it should offer on its commercial paper. The corporation believes that a 0.2 percent credit risk premium, a 0.1 percent liquidity premium, and a 0.3 percent tax adjustment are necessary to sell its commercial paper to investors. Furthermore, annualized rates on  short-term Treasury securities (T-bills)are 7 percent. Based on this information, Vaughn should offer ____ percent on its commercial paper.

The preference for more liquid short-term securities places downward pressure on the slope of the yield curve.

According to the text, research on the term structure of interest rates has found that maturity markets are not even partially segmented, because investors view various maturities as adequate substitutes for each other.

Credit ratings are most commonly used to indicate which financial institutions have available funds that they can lend to borrowers.

Assume that annualized yields of short-term and long-term securities are equal. If investors suddenly believe interest rates will increase, their actions may cause the yield curve to

Assume that the Treasury experiences a large increase in the budget deficit and issues a large number of short-term securities (Treasury bills or T-bills). This action will ____ the supply of T-bills in the market and place ____ pressure on the yield of T-bills.

Assume an investor's tax rate is 25 percent. The before-tax yield on a security is 12 percent. What is the after-tax yield?