Exam 3: Structure of Interest Rates

If a yield curve is upward sloping, the investment strategy of buying long-term securities, then selling them after a short period (say, one year) is called

If the Treasury uses a relatively large proportion of ____ debt to finance the deficit, this may place upward pressure on ____ interest rates, and corporations may reduce their investment in fixed assets.

According to segmented markets theory, if investors have mostly long-term funds available and borrowers want short-term funds, this will place ____ pressure on the demand for long-term funds issued by borrowers and the yield curve will be ____ sloping.

Yield curves are always upward sloping.

The term structure of interest rates defines the relationship between maturity and annualized yield, holding other factors such as risk constant.

Assume an investor's tax rate is 25 percent. The before-tax yield on a security is 12 percent. What is the after-tax yield?

If the liquidity premium exists, a flat yield curve would be interpreted as the market expecting ____ in interest rates.

According to the segmented markets theory, the term structure of interest rates is determined solely by expectations of future interest rates.

If all other characteristics are similar, ____ would have to offer ____.

The higher a bond rating, the lower the perceived default risk.

Bonds issued at different times by the same corporation may not receive the same rating from a rating agency.

All other characteristics being equal, securities with ____ liquidity would have to offer a ____ yield to be preferred.

A firm in the 35 percent tax bracket is aware of a tax-exempt security that is paying a yield of 7 percent. To match this yield, taxable securities must offer a before-tax yield of

If research showed that anticipation about future interest rates was the only important factor for all investors in choosing short-term or long-term securities, this would support the argument made by the

An investor's tax rate is 30 percent. What must the before-tax yield on a security be to have an after-tax yield of 11 percent?

The yields of securities commonly move in the same direction over time.

Assume investors are indifferent among security maturities. Today, the annualized 2-year interest rate is 12 percent, and the 1-year interest rate is 9 percent. What is the forward rate according to the pure expectations theory?

Investment-grade bonds are bonds that are rated as Caa or better by Moody's and as CCC or better by Standard & Poor's.

Assume that the current yield on one-year securities is 6 percent, and that the yield on a two-year security is 7 percent. If the liquidity premium on a two-year security is 0.4 percent, then the one-year forward rate is

The Financial Reform Act of 2010 established the __________ within the _________ to regulate credit rating agencies.