Exam 5: How Do Risk and Term Structure Affect Interest Rates?

Which theory of the term structure proposes that bonds of different maturities are not substitutes for one another?

According to the expectations theory,the interest rate on a long-term bond is the average of the short-term interest rates expected over the life of the long-term bond.

The risk structure of interest rates is explained by

Bonds with relatively low risk of default are called

Risk occurs when the issuer of the bond is unable or unwilling to make interest payments when promised or pay off the face value when the bond matures.

________ bonds are exempt from federal income taxes.

The ________ theory is the most widely accepted theory of the term structure of interest rates because it explains the major empirical facts about the term structure so well.

A moderately upward-sloping yield curve indicates that short-term interest rates are expected to

Why is it unlikely that the expectations theory alone is the correct theory for explaining the yield curve?

Contrast the liquidity premium theory to the market segmentation theory of the term structure of interest rates.

The term structure of interest rates describes how interest rates move over time.

The term structure of interest rates is

During the budget negotiations in Congress in 1995-1996,and then again in 2011-2013,the Republicans threatened to let Treasury bonds default,and this had an impact on the bond market.

According to the expectations theory of the term structure,

According to the liquidity premium theory of the term structure,when the yield curve has its usual slope,the market expects

When a municipal bond is given tax-free status,the demand for municipal bonds shifts ________,causing the interest rate on the bond to ________.

Yield curves can be classified as

If a corporation begins to suffer large losses,then the default risk on its bonds will ________ and the equilibrium interest rate on these bonds will ________.

________ cannot explain the empirical fact that interest rates on bonds of different maturities tend to move together.

If a corporation's earnings rise,then the default risk on its bonds will ________ and the equilibrium interest rate on these bonds will ________.