Exam 11: The Term Structure of Interest Rates

With an upward-sloping yield curve, the yield rises steadily as the ________.

Suppose an investor purchases a five-year, zero-coupon Treasury security for $58.48 with a maturity value of $100. The investor could instead buy a six-month Treasury bill and reinvest the proceeds every six months for five years. The number of dollars that will be realized will ________.

For a flat yield curve, the yields are identical for each maturity.

Which of the below statements about the pure expectations theory is FALSE.

Because of the different cash flow patterns, it is not appropriate to use ________ to discount all cash flows because each cash flow should be discounted at ________ that is appropriate for the time period in which the cash flow will be received.

Market participants refer to forward rates as being hedgeable rates. For example, by buying the one-year security, the investor is able to hedge the six-month rate that will occur six months from now.

The slope of a yield curve is commonly measured in terms of ________, which is the difference between long-term and short-term yields.

To determine the value of each zero-coupon instrument, it is necessary to know the yield on a corporate bond with that same maturity.

Comprehensive research on the main influences of the shape of the Treasury yield curve was done by Antti Ilmanen in a series of papers. He finds that there are three main influences. Which of the below is NOT one of these main influences?

Two major theories have evolved to account for these observed shapes of the yield curve: ________.

There have not been many instances in the recent history of the U.S. Treasury market where the yield curve exhibited ________.

What is the basic principle underlying bootstrapping? Explain how to compute the spot rate for a theoretical 1.5-year zero-coupon Treasury.

The convention in the marketplace is to refer to a Treasury positively sloped yield curve whose maturity spread (measured by the six month and 30-year yields) as a ________ when the spread is 300 basis points or less.

Market participants have tended to construct yield curves from observations of prices and yields in the Treasury market. Two reasons account for this tendency. Which of the below is ONE of these reasons?

Which of the below statements is FALSE?

As quoted on a bond equivalent basis, what is the forward rate (f) for a six-month security if z₁ is 2.00% and z₂ is 4.50%?

More recently market participants have come to realize that the traditionally constructed Treasury yield curve is ________ measure of the relation between required yield and maturity with the key reason is that securities with the same maturity may actually provide ________.

The correct way to think about bonds A and B is not as bonds but as packages of ________.

According to the ________, the forward rates exclusively represent the expected future rates.

The market prices its expectations of future interest rates into the rates offered ________.