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

An increase in marginal tax rates would likely have the effect of ________ the demand for municipal bonds and ________ the demand for U.S. government bonds.

The risk structure of interest rates is

If the expected path of one-year interest rates over the next five years is 1 percent, 2 percent, 3 percent, 4 percent, and 5 percent, then the pure expectations theory predicts that the bond with the highest interest rate today is the one with a maturity of

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

(I)If a corporate bond becomes less liquid, the interest rate on the bond will fall. (II)If a corporate bond becomes less liquid, the interest rate on Treasury bonds will fall.

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

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

If municipal bonds were to lose their tax-free status, then the demand for Treasury bonds would shift ________, and the interest rate on Treasury bonds would ________.

Bonds with relatively low risk of default are called

The liquidity premium theory of the term structure

Which of the following statements are true?

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

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

A decrease in marginal tax rates would likely have the effect of ________ the demand for municipal bonds and ________ the demand for U.S. government bonds.

Which of the following long-term bonds should have the lowest interest rate?

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 ________.

The risk structure of interest rates is explained by

Corporate bonds are not as liquid as government bonds because

Of the four theories that explain how interest rates on bonds with different terms to maturity are related, the one that views long-term interest rates as equaling the average of future short-term rates expected to occur over the life of the bond is the

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