Exam 6: The Risk and Term Structure of Interest Rates

During the Great Depression years 1930-1933 there was a very high rate of business failures and defaults,we would expect the risk premium for ________ bonds to be very high.

Over the next three years,the expected path of 1-year interest rates is 4,1,and 1 percent. The expectations theory of the term structure predicts that the current interest rate on 3-year bond is

U)S. government bonds have no default risk because

Which of the following bonds would have the highest default risk?

If the federal government where to raise the income tax rates,would this have any impact on a state's cost of borrowing funds? Explain.

Everything else held constant,if the federal government were to guarantee today that it will pay creditors if a corporation goes bankrupt in the future,the interest rate on corporate bonds will ________ and the interest rate on Treasury securities will ________.

In actual practice,short-term interest rates and long-term interest rates usually move together;this is the major shortcoming of the

According to the liquidity premium theory of the term structure,a steeply upward sloping yield curve indicates that short-term interest rates are expected to

Everything else held constant,a decrease in marginal tax rates would likely have the effect of ________ the demand for municipal bonds,and ________ the demand for U.S. government bonds.

A bond with default risk will always have a ________ risk premium and an increase in its default risk will ________ the risk premium.

Use the following figure to answer the question : -The mound-shaped yield curve in the figure above indicates that short-term interest rates are expected to

Which of the following long-term bonds has the highest interest rate?

The expectations theory and the segmented markets theory do not explain the facts very well,but they provide the groundwork for the most widely accepted theory of the term structure of interest rates

If the expected path of one-year interest rates over the next five years is 4 percent,5 percent,7 percent,8 percent,and 6 percent,then the expectations theory predicts that today's interest rate on the five-year bond is

A decrease in the liquidity of corporate bonds will ________ the yield of corporate bonds and ________ the yield of Treasury bonds,everything else held constant.

If the federal government were to guarantee payment on municipal bonds,the price of municipal bonds would ________ and the yield on U.S. Treasury bonds would ________,all else equal.

If the possibility of a default increases because corporations begin to suffer losses,then the default risk on corporate bonds will ________,and the bonds' returns will become ________ uncertain,meaning that the expected return on these bonds will decrease,everything else held constant.

Everything else held constant,abolishing the individual income tax will

The spread between interest rates on low quality corporate bonds and U.S. government bonds

The risk structure of interest rates is