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

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 ________.

The risk structure of interest rates is

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

If a bond has a favorable tax treatment, its required interest rate (all else equal)

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

Since yield curves are usually upward sloping, the ________ indicates that, on average, people tend to prefer holding short-term bonds to long-term bonds.

Discuss what is shown by a yield curve.

(I)An increase in default risk on corporate bonds shifts the demand curve for corporate bonds to the right. (II)An increase in default risk on corporate bonds shifts the demand curve for Treasury bonds to the left.

Economists' attempts to explain the term structure of interest rates

If income tax rates were lowered, then

The risk structure of interest rates is explained by

The spread between interest rates on low-quality corporate bonds and U.S. government bonds ________ during the Great Depression.

________ bonds are exempt from federal income taxes.

A corporation suffering big losses might be more likely to suspend interest payments on its bonds, thereby

The relationship among interest rates on bonds with identical default risk but different maturities is called the

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

Following the subprime collapse, the spread (difference)between the interest rates on Baa bonds and Treasury bonds widened.

As a result of the subprime collapse, the demand for low -quality corporate bonds ________, the demand for high-quality Treasury bonds ________, and the risk spread ________.

The interest rates on bonds of different maturities tend to move together over time.

Moody's and Standard and Poor's are agencies that