Exam 3: Structure of Interest Rates

A theory states that while investors and borrowers may normally concentrate on a particular natural maturity market, conditions may cause them to change maturity markets. This theory is calledthe

If shorter-term securities have higher annualized yields than longer-term securities, the yield curve

Credit (default) risk is likely to be highest for

Assume the yield curve is flat. If investors flood the short-term market and avoid the long-term market, they may cause the yield curve to

The preference for more liquid short-term securities places downward pressure on the slope of the

The higher a bond rating, the lower the perceived credit risk.

Because interest rates may vary significantly across countries at a given point in time, investors do not monitor the term structures of interest rates in foreign countries unless they are interested in investing in a particular foreign country.

An upward-sloping yield curve indicates that Treasury securities with ____ maturities offer ____ annualized yields.

In general, securities with ____ characteristics will offer ____ yields.

Within the category of capital market securities, municipal bonds have the before-tax yield, and their after-tax yield is typically of Treasury bonds from the perspective of investors in high tax brackets.

The term structure of interest rates defines the relationship

If a security can easily be converted to cash without a loss in value, it

According to segmented markets theory, if investors have mostly short-term funds available and borrowers want long-term funds, there would be ____ pressure on the supply of short-term funds provided by investors and ____ pressure on the yield of long-term securities.

Holding other factors such as risk constant, the relationship between the maturity and the annualized yield of debt securities is called the

The graphic comparison of maturities and annualized yields is known as the interest rate curve.

The forward rate is commonly used to represent the market's forecast of the future interest rate.

In some time periods, there is evidence that corporations initially financed long-term projects with short-term funds. They planned to borrow long-term funds once interest rates were lower. Thisspecifically supports the ____ for explaining the term structure of interest rates.

The theory for the term structure of interest rates that says the shape of the yield curve is determined solely by expectations of future interest rates is called the

Yield curves are always upward sloping.

Vaughn Corporation is considering the issue of commercial paper and would like to know the yield it should offer on its commercial paper. The corporation believes that a 0.2 percent credit riskpremium, a 0.1 percent liquidity premium, and a 0.3 percent tax adjustment are necessary to sell its commercial paper to investors. Furthermore, annualized T-bill rates are 7 percent. Based on this information, Vaughn should offer ____ percent on its commercial paper.