Exam 6: The Risk and Term Structure of Interest Rates

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 ________.

Differences in ________ explain why interest rates on Treasury securities are not all the same.

Other things being equal,an increase in the default risk of corporate bonds shifts the demand curve for corporate bonds to the ________ and the demand curve for Canada bonds to the ________.

The spread between the interest rates on Baa corporate bonds and Canada bonds was very large during the Great Depression years 1930-1933.Explain this difference using the bond supply and demand analysis.

An inverted yield curve ________.

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 income tax rates were lowered,then ________.

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

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 ________.

What is the shape of the yield curve when short-term rates are expected to rise sharply in the mid-term and moderately in the long-term?

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

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 ________.

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

According to this theory of the term structure,bonds of different maturities are not substitutes for one another.

A plot of the interest rates on default-free Canada bonds with different terms to maturity is called ________.

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

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.

If a higher inflation is expected,what would you expect to happen to the shape of the yield curve? Why?

Which of the following statements is true?

When interest rates on 1-2-3-4-5 year bonds are 2.0,2.1,2.3,2.4,and 2.5 percent respectively,what information do we derive on future economic growth and real output?