Exam 6: The Risk and Term Structure of Interest Rates

When the Treasury bond market becomes more liquid,other things equal,the demand curve for corporate bonds shifts to the ________ and the demand curve for Treasury bonds shifts to the ________.

Everything else held constant,if the federal government were to guarantee today that it will pay creditors if a corporation goes bankrupt in the future,the interest rate on corporate bonds will ________ and the interest rate on Treasury securities will ________.

Which of the following bonds would have the highest default risk?

If bonds with different maturities are perfect substitutes,then the ________ on these bonds must be equal.

If the possibility of a default increases because corporations begin to suffer losses,then the default risk on corporate bonds will ________,and the bonds' returns will become ________ uncertain,meaning that the expected return on these bonds will decrease,everything else held constant.

Everything else held constant,abolishing the individual income tax will

When the Treasury bond market becomes less liquid,other things equal,the demand curve for corporate bonds shifts to the ________ and the demand curve for Treasury bonds shifts to the ________.

Bonds with no default risk are called

The term structure of interest rates is

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 Treasury bonds to the ________.

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

The spread between interest rates on low quality corporate bonds and U.S.government bonds

According to the liquidity premium theory of the term structure

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

Everything else held constant,an increase in marginal tax rates would likely have the effect of ________ the demand for municipal bonds,and ________ the demand for U.S.government bonds.

Which of the following statements is TRUE?

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 the yield curve slope is flat for short maturities and then slopes steeply upward for longer maturities,the liquidity premium theory (assuming a mild preference for shorter-term bonds)indicates that the market is predicting

According to the expectations theory of the term structure

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