Question 1

Suppose that savers become much more willing to purchase a certain type of municipal bond. The result will be that the bond's price will

Accepted Answer

A) fall relative to the price of U.S. Treasury securities but rise relative to the price of corporate bonds. 
B) rise relative to the price of U.S. Treasury securities but fall relative to the price of corporate bonds. 
C) rise relative to the prices of U.S. Treasury securities and corporate bonds. 
D) fall relative to the prices of U.S. Treasury securities and corporate bonds. 
A) fall relative to the price of U.S. Treasury securities but rise relative to the price of corporate bonds. 
B) rise relative to the price of U.S. Treasury securities but fall relative to the price of corporate bonds. 
C) rise relative to the prices of U.S. Treasury securities and corporate bonds. 
D) fall relative to the prices of U.S. Treasury securities and corporate bonds.

Question 2

For state residents, interest on most bonds issued by their state government is

Accepted Answer

A) exempt from state and federal income taxes. 
B) exempt from state, but not from federal, income taxes. 
C) exempt from federal, but not from state, income taxes. 
D) subject to both state and federal income taxes. 
A) exempt from state and federal income taxes. 
B) exempt from state, but not from federal, income taxes. 
C) exempt from federal, but not from state, income taxes. 
D) subject to both state and federal income taxes.

Question 3

During the financial crisis of 2007-09, the prices of U.S. Treasury securities

Accepted Answer

A) rose and the price of corporate bonds declined. 
B) fell relative to the prices of corporate bonds. 
C) remained in the same relative position to the prices of corporate bonds. 
D) were frozen by order of the federal government. 
A) rose and the price of corporate bonds declined. 
B) fell relative to the prices of corporate bonds. 
C) remained in the same relative position to the prices of corporate bonds. 
D) were frozen by order of the federal government.

Question 4

Which of the following bond ratings by Moody's Investors Service would NOT be considered to be below investment grade?

Accepted Answer

A) Baa 
B) Ba 
C) B 
D) All of these ratings are considered below investment grade. 
A) Baa 
B) Ba 
C) B 
D) All of these ratings are considered below investment grade.

Question 5

Which of the following is a single statistic that summarizes a rating agency's view of the issuer's likely ability to make the required payments on its bonds?

Accepted Answer

A) grade 
B) bond rating 
C) speculation 
D) yield 
A) grade 
B) bond rating 
C) speculation 
D) yield

Question 6

According to the liquidity premium theory, what does a flat yield curve indicate?

Accepted Answer

A) Short-term interest rates are expected to remain stable. 
B) Short-term interest rates are expected to rise. 
C) Short-term interest rates are expected to fall. 
D) Long-term interest rates are expected to fall. 
A) Short-term interest rates are expected to remain stable. 
B) Short-term interest rates are expected to rise. 
C) Short-term interest rates are expected to fall. 
D) Long-term interest rates are expected to fall.

Question 7

In 2009, global investors began to regain confidence in the financial system and reversed the flight to safety that had taken place during the depths of the financial crisis. Make use of a graph of the market for corporate bonds to show the impact on corporate bonds prices and yields.

Accepted Answer

As investors regained confiden

Question 8

A company that retains a high bond rating during a recession in which many other companies see their bond ratings cut will experience

Accepted Answer

A) an increased flow of funds into the market for its securities. 
B) an increased demand for its securities, resulting in a higher expected return. 
C) a decreased demand for its securities, resulting in a lower expected return. 
D) a decreased flow of funds into the market for its securities. 
A) an increased flow of funds into the market for its securities. 
B) an increased demand for its securities, resulting in a higher expected return. 
C) a decreased demand for its securities, resulting in a lower expected return. 
D) a decreased flow of funds into the market for its securities.

Question 9

Which interest rate is typically the lowest?

Accepted Answer

A) 3-month Treasury bills 
B) 2-year Treasury notes 
C) 10-year Treasury bonds 
D) 30-year Treasury bonds 
A) 3-month Treasury bills 
B) 2-year Treasury notes 
C) 10-year Treasury bonds 
D) 30-year Treasury bonds

Question 10

Which of the following is NOT true of the yield curve for U.S. Treasury securities?

Accepted Answer

A) Typically, it slopes upward. 
B) It depicts the relationship among yields on securities of different maturities. 
C) Typically, it shifts up or down rather than twists. 
D) Typically, it slopes downward. 
A) Typically, it slopes upward. 
B) It depicts the relationship among yields on securities of different maturities. 
C) Typically, it shifts up or down rather than twists. 
D) Typically, it slopes downward.

Question 11

If the expected path of interest rates on one-year bonds over the next five years is 2%, 4%, 3%, 2%, and 1%, the expectations theory predicts that the bond with the lowest interest rate today is the one with a maturity of

Accepted Answer

A) one year. 
B) two years. 
C) three years. 
D) five years. 
A) one year. 
B) two years. 
C) three years. 
D) five years.

Question 12

If the six-month Treasury bill has an interest rate of 0.5%, the ten-year Treasury bond has an interest rate of 1.6%, and a ten-year bond issued by Dell has an interest rate of 4%, what is the risk premium on Dell's bond?

Accepted Answer

The risk p

Question 13

Which of the following accurately describes the tax treatment of municipal bonds?

Accepted Answer

A) All income from municipal bonds is tax free. 
B) Interest is tax free, but unrealized capital gains are taxable. 
C) Interest is tax free, but realized capital gains are taxable. 
D) Interest is taxable, but capital gains are tax free. 
A) All income from municipal bonds is tax free. 
B) Interest is tax free, but unrealized capital gains are taxable. 
C) Interest is tax free, but realized capital gains are taxable. 
D) Interest is taxable, but capital gains are tax free.

Question 14

A one-year bond has an interest rate of 3% and is expected to fall to 2.5% next year and 2% in two years. The term premium for a two-year bond is 0.3% and for a three-year bond is 0.5%. What are the interest rates on a two-year bond and three-year bond according to the liquidity premium theory?

Accepted Answer

A two-year bond will have an i

Question 15

Which criterion is NOT useful when evaluating a theory?

Accepted Answer

A) It has predictive power. 
B) It fits one's pre-conceived bias. 
C) It offers a model consistent with investor behavior. 
D) It explains actual data well. 
A) It has predictive power. 
B) It fits one's pre-conceived bias. 
C) It offers a model consistent with investor behavior. 
D) It explains actual data well.

Question 16

When the yield curve is downward-sloping,

Accepted Answer

A) short-term yields are higher than long-term yields. 
B) long-term yields are higher than short-term yields. 
C) the bond market is anticipating the U.S. Treasury may default on its obligations. 
D) the inflation rate is expected to rise. 
A) short-term yields are higher than long-term yields. 
B) long-term yields are higher than short-term yields. 
C) the bond market is anticipating the U.S. Treasury may default on its obligations. 
D) the inflation rate is expected to rise.

Question 17

Financial instruments with high information costs

Accepted Answer

A) will usually be more liquid than similar instruments with low information costs. 
B) will have lower yields than U.S. Treasury securities. 
C) may not be offered for sale in some states. 
D) will have lower prices than similar instruments with low information costs. 
A) will usually be more liquid than similar instruments with low information costs. 
B) will have lower yields than U.S. Treasury securities. 
C) may not be offered for sale in some states. 
D) will have lower prices than similar instruments with low information costs.

Question 18

Describe the facts found in the bond market about the relationship between interest rates on bonds of different maturities.

Accepted Answer

Typically, long-term interest

Question 19

The segmented markets theory

Accepted Answer

A) has difficulty explaining why yield curves usually slope up. 
B) has difficulty explaining why yield curves usually slope down. 
C) has difficulty explaining why yields on instruments of different maturities tend to move together. 
D) provides a good explanation of why yields on instruments of different maturities tend to move together. 
A) has difficulty explaining why yield curves usually slope up. 
B) has difficulty explaining why yield curves usually slope down. 
C) has difficulty explaining why yields on instruments of different maturities tend to move together. 
D) provides a good explanation of why yields on instruments of different maturities tend to move together.

Question 20

What is a primary reason for the yield on 3-month Treasury bills being low during recessions?

Accepted Answer

A) low risk premium 
B) the Fed pushing short-term interest rates down 
C) rising inflation 
D) the inversion of the yield curve 
A) low risk premium 
B) the Fed pushing short-term interest rates down 
C) rising inflation 
D) the inversion of the yield curve

Suppose that savers become much more willing to purchase a certain type of municipal bond. The result will be that the bond's price will

For state residents, interest on most bonds issued by their state government is

During the financial crisis of 2007-09, the prices of U.S. Treasury securities

Which of the following bond ratings by Moody's Investors Service would NOT be considered to be below investment grade?

Which of the following is a single statistic that summarizes a rating agency's view of the issuer's likely ability to make the required payments on its bonds?

According to the liquidity premium theory, what does a flat yield curve indicate?

In 2009, global investors began to regain confidence in the financial system and reversed the flight to safety that had taken place during the depths of the financial crisis. Make use of a graph of the market for corporate bonds to show the impact on corporate bonds prices and yields.

A company that retains a high bond rating during a recession in which many other companies see their bond ratings cut will experience

Which interest rate is typically the lowest?

Which of the following is NOT true of the yield curve for U.S. Treasury securities?

If the expected path of interest rates on one-year bonds over the next five years is 2%, 4%, 3%, 2%, and 1%, the expectations theory predicts that the bond with the lowest interest rate today is the one with a maturity of

If the six-month Treasury bill has an interest rate of 0.5%, the ten-year Treasury bond has an interest rate of 1.6%, and a ten-year bond issued by Dell has an interest rate of 4%, what is the risk premium on Dell's bond?

Which of the following accurately describes the tax treatment of municipal bonds?

A one-year bond has an interest rate of 3% and is expected to fall to 2.5% next year and 2% in two years. The term premium for a two-year bond is 0.3% and for a three-year bond is 0.5%. What are the interest rates on a two-year bond and three-year bond according to the liquidity premium theory?

Which criterion is NOT useful when evaluating a theory?

When the yield curve is downward-sloping,

Financial instruments with high information costs

Describe the facts found in the bond market about the relationship between interest rates on bonds of different maturities.

The segmented markets theory

What is a primary reason for the yield on 3-month Treasury bills being low during recessions?

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Stock Market, Information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, Asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: The Aggregate Demand and Aggregate Supply Model

Monetary Theory II: The IS-MP Model

Filters

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

Suppose that savers become much more willing to purchase a certain type of municipal bond. The result will be that the bond's price will

For state residents, interest on most bonds issued by their state government is

During the financial crisis of 2007-09, the prices of U.S. Treasury securities

Which of the following bond ratings by Moody's Investors Service would NOT be considered to be below investment grade?

Which of the following is a single statistic that summarizes a rating agency's view of the issuer's likely ability to make the required payments on its bonds?

According to the liquidity premium theory, what does a flat yield curve indicate?

In 2009, global investors began to regain confidence in the financial system and reversed the flight to safety that had taken place during the depths of the financial crisis. Make use of a graph of the market for corporate bonds to show the impact on corporate bonds prices and yields.

A company that retains a high bond rating during a recession in which many other companies see their bond ratings cut will experience

Which interest rate is typically the lowest?

Which of the following is NOT true of the yield curve for U.S. Treasury securities?

If the expected path of interest rates on one-year bonds over the next five years is 2%, 4%, 3%, 2%, and 1%, the expectations theory predicts that the bond with the lowest interest rate today is the one with a maturity of

If the six-month Treasury bill has an interest rate of 0.5%, the ten-year Treasury bond has an interest rate of 1.6%, and a ten-year bond issued by Dell has an interest rate of 4%, what is the risk premium on Dell's bond?

Which of the following accurately describes the tax treatment of municipal bonds?

A one-year bond has an interest rate of 3% and is expected to fall to 2.5% next year and 2% in two years. The term premium for a two-year bond is 0.3% and for a three-year bond is 0.5%. What are the interest rates on a two-year bond and three-year bond according to the liquidity premium theory?

Which criterion is NOT useful when evaluating a theory?

When the yield curve is downward-sloping,

Financial instruments with high information costs

Describe the facts found in the bond market about the relationship between interest rates on bonds of different maturities.

The segmented markets theory

What is a primary reason for the yield on 3-month Treasury bills being low during recessions?

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Stock Market, Information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, Asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: The Aggregate Demand and Aggregate Supply Model

Monetary Theory II: The IS-MP Model

Filters