Exam 3: Structure of Interest Rates

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.

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?

The term structure of interest rates defines the relationship

Holding other factors such as risk constant, the relationship between the maturity and annualized yield of securities is called the

The annualized yield on a three-year security is 13 percent; the annualized two-year interest rate is 12 percent, while the one-year interest rate is 9 percent.The forward rate two years ahead is ____ percent.

Assume that the Treasury experiences a large increase in the budget deficit and issues a large number of T-bills.This action will ____ the supply of T-bills in the market and place ____ pressure on the yield of T-bills.

Assume the yield curve is flat.If investors flood the short-term market and avoid the long-term market, they may cause the yield curve to

If liquidity influences the yield curve, but is not considered when deriving the forward interest rate, the forward interest rate ____ the market's expectation of the future interest rate.

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 short-term funds by borrowers and the yield curve will be ____ sloping.

If research showed that all investors attempt to purchase securities that perfectly match their time in which they will have available funds, this would specifically support the argument made by the

In some time periods there is evidence that corporations initially financed long-term projects with short-term funds.They planned to borrow long-term funds once interest rates were lower.This specifically supports the ____ for explaining the term structure of interest rates.

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

Securities that offer ____ liquidity will offer a ____ yield to be preferred.

The forward rate is commonly used to represent the market's forecast of the future interest rate.

The theory for the term structure of interest rates that says the shape of the yield curve is determined solely by expectations of future interest rates is called the

Some financial institutions such as commercial banks are required by law to invest only in

According to expectations theory, the sudden expectation of lower interest rates in the future will cause a ____ supply of short-term funds provided by investors, and a ____ supply of long-term funds.

In general, securities with ____ characteristics will offer ____ yields.

According to the segmented markets theory, if most investors suddenly preferred to invest in short-term securities and most borrowers suddenly preferred to issue long-term securities there would be

You are considering the purchase of a tax-exempt security that is paying a yield of 10.08 percent.You are in the 28 percent tax bracket.To match this after-tax yield, you would consider taxable securities that pay