Exam 6: The Risk and Term Structure of Interest Rates

A(n)________ in the riskiness of corporate bonds will ________ the price of corporate bonds and ________ the yield on corporate bonds,all else equal.

The risk that interest payments will not be made,or that the face value of a bond is not repaid when a bond matures is

According to the liquidity premium theory,a yield curve that is flat means that

If 1-year interest rates for the next five years are expected to be 4,2,5,4,and 5 percent,and the 5-year term premium is 1 percent,than the 5-year bond rate will be

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

During a "flight to quality"

Corporate bonds are not as liquid as government bonds because

If the probability of a bond default increases because corporations begin to suffer large losses,then the default risk on corporate bonds will ________ and the expected return on these bonds will ________,everything else held constant.

Municipal bonds have default risk,yet their interest rates are usually lower than the rates on default-free Treasury bonds. This suggests that

The segmented markets theory can explain

Which of the following statements are TRUE?

When yield curves are downward sloping

If the expected path of 1-year interest rates over the next five years is 1 percent,2 percent,3 percent,4 percent,and 5 percent,the expectations theory predicts that the bond with the highest interest rate today is the one with a maturity of

According to the segmented markets theory of the term structure

The spread between the interest rates on bonds with default risk and default-free bonds is called the

Junk bonds,bonds with a low bond rating,are also known as