Exam 3: Structure of Interest Rates

If the liquidity premium exists, a flat yield curve would be interpreted as the market expecting ____ in interest rates.

According to expectations theory, the sudden expectation of lower interest rates in the future will cause investors to provide a ____ supply of short-term funds and a ____ supply of long-termfunds.

Assume that a yield curve is influenced by interest rate expectations and a liquidity premium. Assume the yield curve is initially flat. If liquidity suddenly was no longer important, the yieldcurve would now have a ____ (assuming no other changes).

Bonds issued at different times by the same corporation may not receive the same rating from a rating agency.

You are considering the purchase of a tax-exempt security that is paying a yield of 10.08 percent. You are in the 28 percent tax bracket. To match this after-tax yield, you would consider taxablesecurities that pay

If the yield curve is upward sloping, some investors may attempt to benefit from the higher yields on longer-term securities, even when they have funds for only a short period of time. This strategy is known as riding the yield curve.

Other things being equal, an expected decrease in interest rates will increase the demand for long-term funds by borrowers.

Assume that debt maturity markets are segmented, such that short-term debt markets are funded by surplus units that are different from the surplus units that fund the long-term debt markets.Ifthe Treasury uses a relatively large proportion of ____ debt to finance the deficit, this may place upward pressure on ____ interest rates.

If liquidity influences the yield curve, but is not considered when deriving the forward interest rate, the forward interest rate ____ the market's expectation of the future interest rate.

Assume an investor's tax rate is 25 percent. The before-tax yield on a security is 12 percent. What is the after-tax yield?

According to the segmented markets theory, if most investors suddenly preferred to invest in short-term securities and most borrowers suddenly preferred to issue long-term securities, there wouldbe

According to the pure expectations theory of the term structure of interest rates, the ____ the difference between the implied one-year forward rate and today's one-year interest rate, the ____is the expected change in the one-year interest rate.

Interest rate movements across countries tend to be _________ correlated as a result of ____________ financial markets.

The ____ theory suggests that although investors and borrowers may normally concentrate on a particular natural maturity market, certain events may cause them to wander from it

According to pure expectations theory, if interest rates are expected to decrease, there will be ____ pressure on the demand for short-term funds by borrowers and ____ pressure on the demandforlong-term funds issued by borrowers.

Which of the following statements is not true with respect to debt securities?

Which of the following is not a characteristic affecting the yields on debt securities?

Other things being equal, the yield required on A-rated bonds should be ____ the yield required on B-rated bonds whose other characteristics are exactly the same.

Assume that the Treasury experiences a large increase in the budget deficit and issues a large number of T-bills. This action will ____ the supply of T-bills in the market and place ____ pressureon the yield of T-bills.