Exam 6: The Risk and Term Structure of Interest Rates

If the yield curve has a mild upward slope,the liquidity premium theory (assuming a mild preference for shorter-term bonds)indicates that the market is predicting ________.

-The mound-shaped yield curve in the figure above indicates that short-term interest rates are expected to ________.

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 default risk on corporate bonds ________ the demand for these bonds,but ________ the demand for default-free bonds,everything else held constant.

Bonds with relatively high risk of default are called ________.

When yield curves are flat,________.

The collapse of the subprime mortgage market ________.

According to the liquidity premium theory of the term structure ________.

Explain the factors that determine the risk structure of interest rates.Explain how a change of each factor changes interest rates.

During a "flight to quality" ________.

The term structure of interest rates is ________.

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 ________.

The segmented markets theory can explain ________.

-The steeply upward sloping yield curve in the figure above indicates that ________.

According to the liquidity premium theory of the term structure ________.

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 ________.

The interest rate on tax-exempt bonds falls relative to the interest rate on U.S.Treasury securities when ________.

-The U-shaped yield curve in the figure above indicates that short-term interest rates are expected to ________.

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

The collapse of the subprime mortgage market increased the spread between Baa and default-free Canada bonds.This is due to ________.