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

According to the expectations theory, what will be the interest rate on a three-year bond if a one-year bond has an interest rate of 2% and is expected to have an interest rate of 3% next year and 5% in two year? Report your answer using a percentage with two decimal places.

The yield on a thirty-year Treasury bond is 8% at the same time as the yield on two-year Treasury note is 5%. This occurrence

Differences in the taxation of returns

The liquidity premium theory holds that investors

The greatest appeal of U.S. Treasury securities is that

Almost every time that there has been an inverted yield curve, what took place within one year?

Suppose that your marginal federal income tax rate is 30%, the sum of your marginal state and local tax rates is 5%, and the yield on thirty-year U.S. Treasury bonds is 10%. You would be indifferent between buying a thirty-year Treasury bond and buying a thirty-year municipal bond issued within your state (ignoring differences in liquidity, risk, and costs of information)if the municipal bond has a yield of

The existence of rating agencies has

According to the liquidity premium theory, if market participants expect that inflation in the future will be lower than it currently is, the yield curve will

According to the liquidity premium theory

Default risk

Many savers are willing to accept a lower interest rate on municipal bonds than on comparable instruments because

The segmented markets theory

When a company whose ability to repay its obligations in full is uncertain,

The expectations theory suggests that

Steve Forbes has run for president twice on a program of a "flat tax." Under a flat tax, there would be only one tax bracket for the federal income tax and most tax deductions and tax exemptions would be eliminated. Suppose that Forbes wins the 2016 presidential election. What would be the likely impact on the market for municipal bonds?

Which bond would someone in a 35% tax bracket choose to buy: a municipal bond with an interest rate of 7% or a corporate bond with an interest rate of 10%?

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 three-year bond according to the liquidity premium theory?

The default risk premium is measured

Which of the following is true of the segmented markets theory?