Exam 6: The Risk and Term Structure of Interest Rates

Use the following figure to answer the questions : -The U-shaped yield curve in the figure above indicates that short-term interest rates are expected to

Which of the following bonds are considered to be default-risk free?

The expectations theory and the segmented markets theory do not explain the facts very well,but they provide the groundwork for the most widely accepted theory of the term structure of interest rates,

According to the liquidity premium theory of the term structure,a slightly upward sloping yield curve indicates that short-term interest rates are expected to

If the federal government where to raise the income tax rates,would this have any impact on a state's cost of borrowing funds? Explain.

According to this theory of the term structure,bonds of different maturities are not substitutes for one another.

If the possibility of a default increases because corporations begin to suffer losses,then the default risk on corporate bonds will ________,and the bonds' returns will become ________ uncertain,meaning that the expected return on these bonds will decrease,everything else held constant.

Differences in ________ explain why interest rates on Treasury securities are not all the same.

When the Treasury bond market becomes more liquid,other things equal,the demand curve for corporate bonds shifts to the ________ and the demand curve for Treasury bonds shifts to the ________.

If 1-year interest rates for the next three years are expected to be 4,2,and 3 percent,and the 3-year term premium is 1 percent,than the 3-year bond rate will be

If a higher inflation is expected,what would you expect to happen to the shape of the yield curve? Why?

U.S.government bonds have no default risk because

Everything else held constant,the interest rate on municipal bonds rises relative to the interest rate on Treasury securities when

The term structure of interest rates is

The risk structure of interest rates is

If the expected path of 1-year interest rates over the next four years is 5 percent,4 percent,2 percent,and 1 percent,then the expectations theory predicts that today's interest rate on the four-year bond is

The collapse of the subprime mortgage market

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

Bonds with relatively high risk of default are called

Everything else held constant,if income tax rates were lowered,then