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

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

Of the four theories that explain how interest rates on bonds with different terms to maturity are related,the one that assumes that bonds of different maturities are not substitutes for one another is the

Explain why a flight to quality occurred following the subprime collapse and how this affected the interest rates on lower-quality corporate bonds and Treasury bonds.

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

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

Why would an increase in the income tax rate reduce borrowing costs to municipalities?

The risk structure of interest rates is