Question 1

The risk structure of interest rates says:

Accepted Answer

A) the interest rates on a variety of bonds will move independently of each other. 
B) lower rated bonds will have higher yields. 
C) U.S.Treasury bond yields always change by more than other bonds. 
D) interest rates only compensate for risk during recessions. 
A) the interest rates on a variety of bonds will move independently of each other. 
B) lower rated bonds will have higher yields. 
C) U.S.Treasury bond yields always change by more than other bonds. 
D) interest rates only compensate for risk during recessions.

Question 2

What impact should an economic slowdown have on the risk structure of interest rates?

Accepted Answer

An economic slowdown should increase the

Question 3

Bonds with the same tax status and ratings:

Accepted Answer

A) always have the same yield. 
B) can have different yields due to different maturities. 
C) should sell for the same price. 
D) will still have different yields depending on their face values. 
A) always have the same yield. 
B) can have different yields due to different maturities. 
C) should sell for the same price. 
D) will still have different yields depending on their face values.

Question 4

An increased risk of a financial crisis in the euro area should cause the:

Accepted Answer

A) demand for all government securities including U.S.Treasury securities to decrease. 
B) risk spread between U.S.Treasury bonds and other bonds to decrease. 
C) price of U.S.Treasury bonds to increase and the yield on other bonds to increase. 
D) price of U.S.Treasury bonds to increase and the yield on other bonds to decrease. 
A) demand for all government securities including U.S.Treasury securities to decrease. 
B) risk spread between U.S.Treasury bonds and other bonds to decrease. 
C) price of U.S.Treasury bonds to increase and the yield on other bonds to increase. 
D) price of U.S.Treasury bonds to increase and the yield on other bonds to decrease.

Question 5

When the yield curve is downward sloping:

Accepted Answer

A) people are expecting an economic slowdown. 
B) short-term yields are lower than long term yields. 
C) people are expecting higher inflation in the future. 
D) people could be expecting a tightening in monetary policy. 
A) people are expecting an economic slowdown. 
B) short-term yields are lower than long term yields. 
C) people are expecting higher inflation in the future. 
D) people could be expecting a tightening in monetary policy.

Question 6

What is the effective after-tax yield to an investor from a bond paying $70 per $1,000 annually, if the investor is in a 25% marginal tax bracket? Explain.

Accepted Answer

5.25%.The $70 is taxed at 25%;

Question 7

Which of the following assigns widely followed bond ratings?

Accepted Answer

A) The Federal Reserve 
B) The Wall Street Journal 
C) Moody's Investor Service 
D) The Nasdaq 
A) The Federal Reserve 
B) The Wall Street Journal 
C) Moody's Investor Service 
D) The Nasdaq

Question 8

What is the equivalent tax-exempt bond yield for a taxable bond with an 8% yield and a bondholder in a 35% marginal tax rate? Explain.

Accepted Answer

5.20%.The tax-exempt bond yiel

Question 9

Explain why many mayors of cities facing the need to borrow for infrastructure improvements, may not look favorably on a large federal income tax rate reduction.

Accepted Answer

The interest earned on municipal bonds i

Question 10

The bond rating of a security reflects the:

Accepted Answer

A) size of the coupon payment relative to the face value. 
B) likelihood the lender/borrower will be repaid by the borrower/issuer. 
C) return a holder is likely to receive. 
D) size of the coupon rate relative to other interest rates. 
A) size of the coupon payment relative to the face value. 
B) likelihood the lender/borrower will be repaid by the borrower/issuer. 
C) return a holder is likely to receive. 
D) size of the coupon rate relative to other interest rates.

Question 11

A permanent increase of borrowing by the U.S.Treasury to finance growing budget deficits will:

Accepted Answer

A) result in U.S.Treasury yields being higher than high-grade corporate bonds. 
B) result in the price of U.S.Treasury bonds rising. 
C) cause the yield on U.S.Treasury bonds to increase, but still be lower than corporate bonds. 
D) result in lower yields on corporate bonds. 
A) result in U.S.Treasury yields being higher than high-grade corporate bonds. 
B) result in the price of U.S.Treasury bonds rising. 
C) cause the yield on U.S.Treasury bonds to increase, but still be lower than corporate bonds. 
D) result in lower yields on corporate bonds.

Question 12

We have heard the predictions regarding the large number of people that will be retiring over the next 25-50 years and the strain this is going to place on the federal budget.Assuming that federal borrowing will have to increase, what is the likely impact going to be on the risk and term structure (if any) of interest rates and why?

Accepted Answer

Increased borrowing by the U.S.Treasury

The risk structure of interest rates says:

What impact should an economic slowdown have on the risk structure of interest rates?

Bonds with the same tax status and ratings:

An increased risk of a financial crisis in the euro area should cause the:

When the yield curve is downward sloping:

What is the effective after-tax yield to an investor from a bond paying $70 per $1,000 annually, if the investor is in a 25% marginal tax bracket? Explain.

Which of the following assigns widely followed bond ratings?

What is the equivalent tax-exempt bond yield for a taxable bond with an 8% yield and a bondholder in a 35% marginal tax rate? Explain.

Explain why many mayors of cities facing the need to borrow for infrastructure improvements, may not look favorably on a large federal income tax rate reduction.

The bond rating of a security reflects the:

A permanent increase of borrowing by the U.S.Treasury to finance growing budget deficits will:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

Stocks, Stock Markets, and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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Exam 7: The Risk and Term Structure of Interest Rates

The risk structure of interest rates says:

What impact should an economic slowdown have on the risk structure of interest rates?

Bonds with the same tax status and ratings:

An increased risk of a financial crisis in the euro area should cause the:

When the yield curve is downward sloping:

What is the effective after-tax yield to an investor from a bond paying $70 per $1,000 annually, if the investor is in a 25% marginal tax bracket? Explain.

Which of the following assigns widely followed bond ratings?

What is the equivalent tax-exempt bond yield for a taxable bond with an 8% yield and a bondholder in a 35% marginal tax rate? Explain.

Explain why many mayors of cities facing the need to borrow for infrastructure improvements, may not look favorably on a large federal income tax rate reduction.

The bond rating of a security reflects the:

A permanent increase of borrowing by the U.S.Treasury to finance growing budget deficits will:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

Stocks, Stock Markets, and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Exchange-Rate Policy and the Central Bank

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

Filters