Exam 5: The Risk Structure and Term Structure of Interest Rates

A one-year bond currently pays 5% interest. It's expected that it will pay 4.5% next year and 4% the following year. The two-year term premium is 0.2% while the three-year term premium is 0.35%. What is the interest rate on a two-year bond according to the liquidity premium theory?

In late 2008, the average risk premium rose because

If lenders anticipate no changes in liquidity, information costs, and tax differences, the yield on a risky security should be

What is the most important contrast between the segmented markets theory and the expectations theory?

According to the liquidity premium theory, a steep yield curve may be an indicator of

Why did some economists and policymakers think ratings agencies had a conflict of interest leading up to the Financial Crisis of 2007-2009?

If the federal government replaced the current income tax with a value-added tax

Interest and capital gains are taxed differently in the United States in that

Under the liquidity premium theory, the expectation that future short-term rates will be constant results in a yield curve that

The difference between the yield on 3-month Treasury bills and 10-year Treasury notes is largest typically during:

Municipal bonds are issued

Why does the segmented markets theory suggest think that bonds of different maturities are not perfect substitutes for each other?

If a one-year bond currently yields 5% and is expected to yield 7% next year, the liquidity premium theory predicts that the yield today on a two-year bond should be

Under the expectations theory if market participants expect that future short-term rates will be higher than current short-term rates, the yield curve will

All of the following are names for bonds receiving low ratings EXCEPT:

A flight to quality refers to a shift by savers from

What are the economic implications of an inverted yield curve?

Which of the following assigns widely-followed bond ratings?

The additional interest that investors require to buy a long-term bond instead of a sequence of short-term bonds is known as the:

Under the liquidity premium theory the shape of the yield curve depends on