Exam 6: The Risk and Term Structure of Interest Rates

Which of the following statements is true?

-The steeply upward sloping yield curve in the figure above indicates that ________ interest rates are expected to ________ in the future.

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

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

Typically, yield curves are ________.

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 government securities will ________.

An increase in the riskiness of corporate bonds will ________ the price of corporate bonds and ________ the price of Canada bonds, everything else held constant.

According to the expectations theory of the term structure ________.

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 ________.

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.