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

(I)If a corporate bond becomes less liquid, the demand for the bond will fall, causing the interest rate to rise. (II)If a corporate bond becomes less liquid, the demand for Treasury bonds does not change.

A mildly upward-sloping yield curve suggests that the market is predicting constant short-term interest rates.

According to the expectations theory of the term structure,

According to the expectations theory of the term structure,

If Moody's or Standard and Poor's downgrades its rating on a corporate bond, the demand for the bond ________ and its yield ________.

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

(I)If a corporation suffers big losses, the demand for its bonds will rise because of the higher interest rates the firm must pay. (II)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

The risk structure of interest rates describes the relationship between the interest rates of different bonds with the same maturities.

Explain why the liquidity premium theory is so widely accepted.

Bonds with relatively high risk of default are called

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

Economists' attempts to explain the term structure of interest rates

According to the market segmentation theory of the term structure,

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

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

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

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 ________.