Exam 6: The Risk and Term Structure of Interest Rates

A ________ yield curve predicts a future increase in inflation.

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

The risk premium on corporate bonds reflects the fact that corporate bonds have a higher default risk and are ________ U.S.Treasury bonds.

During the Great Depression years 1930-1933 there was a very high rate of business failures and defaults,we would expect the risk premium for ________ bonds to be very high.

Which of the following statements are true?

The additional incentive that the purchaser of a Treasury security requires to buy a long-term security rather than a short-term security is called the

The spread between the interest rates on bonds with default risk and default-free bonds is called the

According to the segmented markets theory of the term structure

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

An inverted yield curve

If the probability of a bond default increases because corporations begin to suffer large losses,then the default risk on corporate bonds will ________ and the expected return on these bonds will ________,everything else held constant.

The spread between interest rates on low quality corporate bonds and U.S.government bonds

If 1-year interest rates for the next five years are expected to be 4,2,5,4,and 5 percent,and the 5-year term premium is 1 percent,than the 5-year bond rate will be

Everything else held constant,if the federal government were to guarantee today that it will pay creditors if a corporation goes bankrupt in the future,the interest rate on corporate bonds will ________ and the interest rate on Treasury securities will ________.

If investors expect interest rates to fall significantly in the future,the yield curve will be inverted.This means that the yield curve has a ________ slope.

Use the following figure to answer the questions : -The steeply upward sloping yield curve in the figure above indicates that ________ interest rates are expected to ________ in the future.

The spread between the interest rates on Baa corporate bonds and U.S.government bonds is very large during the Great Depression years 1930-1933.Explain this difference using the bond supply and demand analysis.

Everything else held constant,abolishing all taxes will

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

Risk premiums on corporate bonds tend to ________ during business cycle expansions and ________ during recessions,everything else held constant.