Exam 3: Structure of Interest Rates

The ____ theory suggests that although investors and borrowers may normally concentrate on a particular natural maturity market, certain events may cause them to wander from it.

Investors will always prefer the purchase of risk-free Treasury securities, since other securities have a higher level of risk.

According to pure expectations theory, if interest rates are expected to decrease, there will be ____ pressure on the demand for short-term funds by borrowers and ____ pressure on the demand for long-term funds issued by borrowers.

The yield offered on a debt security is                         related to the prevailing risk-free rate and                         related to the security's risk premium.

If research showed that all investors attempt to purchase securities that perfectly match the time for which they will have available funds, this would specifically support the argument made by the

Yield curves are always upward sloping.

If the yield curve is upward sloping, some investors may attempt to benefit from the higher yields on longer-term securities, even when they have funds for only a short period of time. This strategy is known as riding the yield curve.

The term structure of interest rates defines the relationship

Holding other factors such as risk constant, the relationship between the maturity and the annualized yield of debt securities is called the

The yields of securities commonly move in the same direction over time.

When expectations theory is combined with the liquidity theory, the yield on a security will always be equal to the yield from consecutive investments in shorter-term securities over the same investment horizon. ​

According to the pure expectations theory of the term structure of interest rates, the ____ the difference between the implied one-year forward rate and today's one-year interest rate, the ____ is the expected change in the one-year interest rate.

You are considering the purchase of a tax-exempt security that is paying a yield of 10.08 percent. You are in the 28 percent tax bracket. To match this after-tax yield, you would consider taxable securities that pay

According to the liquidity premium theory, the expected yield on a two-year security will ____ the expected yield from consecutive investments in one-year securities.

Which of the following statements is NOT true with respect to debt securities?

If liquidity influences the yield curve, the forward rate underestimates the market's expectation of the future interest rate.

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

Interest rate movements across countries tend to be _________ correlated as a result of ____________ financial markets.

Assume investors are indifferent among security maturities. Today, the annualized two-year interest rate is 12 percent, and the one-year interest rate is 9 percent. What is the forward rate according to the pure expectations theory?

According to the segmented markets theory, the term structure of interest rates is determined solely by expectations of future interest rates.