Exam 6: The Risk and Term Structure of Interest Rates

Which of the following statements is TRUE?

Economists' attempts to explain the term structure of interest rates

Everything else held constant,if income tax rates were lowered,then

If bonds with different maturities are perfect substitutes,then the ________ on these bonds must be equal.

As their relative riskiness ________,the expected return on corporate bonds ________ relative to the expected return on default-free bonds,everything else held constant.

An inverted yield curve predicts that short-term interest rates

Use the following figure to answer the question : -The U-shaped yield curve in the figure above indicates that the inflation rate is expected to

When short-term interest rates are expected to fall sharply in the future,the yield curve will

A key assumption in the segmented markets theory is that bonds of different maturities

The additional incentive that the purchaser of a Treasury security requires to buy a long-term security rather than a short-term security is called the

The typical shape for a yield curve is

If the yield curve is flat for short maturities and then slopes downward for longer maturities,the liquidity premium theory (assuming a mild preference for shorter-term bonds)indicates that the market is predicting

An increase in the riskiness of corporate bonds will ________ the yield on corporate bonds and ________ the yield on Treasury securities,everything else held constant.

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

An inverted yield curve

According to the liquidity premium theory of the term structure

When the Treasury bond market becomes more liquid,other things equal,the demand curve for corporate bonds shifts to the ________ and the demand curve for Treasury bonds shifts to the ________.

Everything else held constant,the interest rate on municipal bonds rises relative to the interest rate on Treasury securities when

An increase in the riskiness of corporate bonds will ________ the price of corporate bonds and ________ the price of Treasury bonds,everything else held constant.

If the expected path of 1-year interest rates over the next four years is 5 percent,4 percent,2 percent,and 1 percent,then the expectations theory predicts that today's interest rate on the four-year bond is