Exam 6: The Risk and Term Structure of Interest Rates

Other things being equal,a decrease in the default risk of corporate bonds shifts the demand curve for corporate bonds to the ________ and the demand curve for Treasury bonds to the ________.

As their relative riskiness ________,the expected return on corporate bonds ________ relative to the expected return on default-free bonds,everything else held constant.

Which of the following statements are TRUE?

An inverted yield curve predicts that short-term interest rates

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

When the yield curve is flat or downward-sloping,it suggest that the economy is more likely to enter

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

A decrease in the liquidity of corporate bonds will ________ the yield of corporate bonds and ________ the yield of Treasury bonds,everything else held constant.

According to the segmented markets theory of the term structure

If a corporation begins to suffer large losses,then the default risk on the corporate bond will

Economists' attempts to explain the 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

If investors expect interest rates to fall significantly in the future,the yield curve will be inverted.This means that the yield curve has a ________ slope.

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

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

A ________ yield curve predicts a future increase in inflation.

The preferred habitat theory of the term structure is closely related to the

According to the expectations theory of the term structure,the interest rate on a long-term bond will equal the ________ of the short-term interest rates that people expect to occur over the life of the long-term bond.

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

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