Exam 6: The Risk and Term Structure of Interest Rates

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

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

A particularly attractive feature of the ________ is that it tells you what the market is predicting about future short-term interest rates by just looking at the slope of the yield curve.

If you have a very low tolerance for risk,which of the following bonds would you be least likely to hold in your portfolio?

If the yield curve slope is flat for short maturities and then slopes steeply upward for longer maturities,the liquidity premium theory (assuming a mild preference for shorter-term bonds)indicates that the market is predicting

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

The preferred habitat theory of the term structure is closely related to the

Bonds with no default risk are called

Use the following figure to answer the questions : -The mound-shaped yield curve in the figure above indicates that the inflation rate is expected to

Municipal bonds have default risk,yet their interest rates are lower than the rates on default-free Treasury bonds.This suggests that

If the yield curve has a mild upward slope,the liquidity premium theory (assuming a mild preference for shorter-term bonds)indicates that the market is predicting

Which of the following statements is true?

The ________ of the term structure of interest rates states that the interest rate on a long-term bond will equal the average of short-term interest rates that individuals expect to occur over the life of the long-term bond,and investors have no preference for short-term bonds relative to long-term bonds.

A decrease in the liquidity of corporate bonds,other things being equal,shifts the demand curve for corporate bonds to the ________ and the demand curve for Treasury bonds shifts to the ________.

Other things being equal,an increase in the default risk of corporate bonds shifts the demand curve for corporate bonds to the ________ and the demand curve for Treasury bonds to the ________.

The Bush tax cut reduced the top income tax bracket from 39% to 35% over a ten-year period.Supply and demand analysis predicts the impact of this change was a ________ interest rate on municipal bonds and a ________ interest rate on Treasury bonds.

When yield curves are flat,

Which of the following bonds would have the highest default risk?

Bonds with relatively low risk of default are called ________ securities and have a rating of Baa (or BBB)and above; bonds with ratings below Baa (or BBB)have a higher default risk and are called ________.

As default risk increases,the expected return on corporate bonds ________,and the return becomes ________ uncertain,everything else held constant.