Question 1

For state residents,interest on most bonds issued by their state government is

Accepted Answer

A)  exempt from state and federal income taxes. 
B)  exempt from state, but not from federal, income taxes. 
C)  exempt from federal, but not from state, income taxes. 
D)  subject to both state and federal income taxes. 
A)  exempt from state and federal income taxes. 
B)  exempt from state, but not from federal, income taxes. 
C)  exempt from federal, but not from state, income taxes. 
D)  subject to both state and federal income taxes.

Question 2

In 2009,global investors began to regain confidence in the financial system and reversed the flight to safety that had taken place during the depths of the financial crisis.Make use of a graph of the market for corporate bonds to show the impact on corporate bonds prices and yields.

Accepted Answer

As investors regained confiden

Question 3

Suppose that savers become less willing to purchase medium-quality corporate bonds.The result will be that the prices of medium-quality corporate bonds will

Accepted Answer

A)  fall relative to the price of U.S. Treasury securities, but rise relative to the price of high-quality corporate bonds. 
B)  rise relative to the price of U.S. Treasury securities, but fall relative to the price of high-quality corporate bonds. 
C)  rise relative to the prices of U.S. Treasury securities and high-quality corporate bonds. 
D)  fall relative to the prices of U.S. Treasury securities and high-quality corporate bonds. 
A)  fall relative to the price of U.S. Treasury securities, but rise relative to the price of high-quality corporate bonds. 
B)  rise relative to the price of U.S. Treasury securities, but fall relative to the price of high-quality corporate bonds. 
C)  rise relative to the prices of U.S. Treasury securities and high-quality corporate bonds. 
D)  fall relative to the prices of U.S. Treasury securities and high-quality corporate bonds.

Question 4

Which of the following statements about junk (high-risk)bonds is true?

Accepted Answer

A)  They never outperform treasury bonds since they're too risky. 
B)  The price of junk bonds increase as their perceived risk increases. 
C)  They tend to perform best during recessions. 
D)  One can profit by owning them if market perceptions of their risk decline. 
A)  They never outperform treasury bonds since they're too risky. 
B)  The price of junk bonds increase as their perceived risk increases. 
C)  They tend to perform best during recessions. 
D)  One can profit by owning them if market perceptions of their risk decline.

Question 5

Which of the following is NOT true of the yield curve for U.S.Treasury securities?

Accepted Answer

A)  Typically, it slopes upward. 
B)  It depicts the relationship among yields on securities of different maturities. 
C)  Typically, it shifts up or down rather than twists. 
D)  Typically, it slopes downward. 
A)  Typically, it slopes upward. 
B)  It depicts the relationship among yields on securities of different maturities. 
C)  Typically, it shifts up or down rather than twists. 
D)  Typically, it slopes downward.

Question 6

If the expectations theory of the term structure is correct,would a reduction in the supply of thirty-year Treasury bonds affect their yields?

Accepted Answer

No.According to the expectations theory,

Question 7

Currently,a three-year Treasury note pays 4.75%.Assuming that your tax rate is 20%,what is the minimum interest rate that you would you need to earn on a tax-free municipal bond in order to buy it instead?

Accepted Answer

A)  0.95% 
B)  3.8% 
C)  5.7% 
D)  15.25% 
A)  0.95% 
B)  3.8% 
C)  5.7% 
D)  15.25%

Question 8

Under the liquidity premium theory,the expectation that future short-term rates will be constant results in a yield curve that

Accepted Answer

A)  is flat. 
B)  slopes upward. 
C)  slopes downward. 
D)  is flat, slopes upward, or slopes downward, depending on the size of the term premium at each maturity. 
A)  is flat. 
B)  slopes upward. 
C)  slopes downward. 
D)  is flat, slopes upward, or slopes downward, depending on the size of the term premium at each maturity.

Question 9

Which of the following is the lowest rating given to an investment-grade bond by Moody's?

Accepted Answer

A)  AA 
B)  A 
C)  Baa 
D)  B 
A)  AA 
B)  A 
C)  Baa 
D)  B

Question 10

A company that retains a high bond rating during a recession in which many other companies see their bond ratings cut will experience

Accepted Answer

A)  an increased flow of funds into the market for its securities. 
B)  an increased demand for its securities, resulting in a higher expected return. 
C)  a decreased demand for its securities, resulting in a lower expected return. 
D)  a decreased flow of funds into the market for its securities. 
A)  an increased flow of funds into the market for its securities. 
B)  an increased demand for its securities, resulting in a higher expected return. 
C)  a decreased demand for its securities, resulting in a lower expected return. 
D)  a decreased flow of funds into the market for its securities.

Question 11

The segmented markets theory

Accepted Answer

A)  explains upward-sloping yield curves as resulting from the demand for long-term bonds being high relative to the demand for short-term bonds. 
B)  explains upward-sloping yield curves as resulting from the demand for long-term bonds being low relative to the demand for short-term bonds. 
C)  explains upward-sloping yield curves as resulting from the favorable tax treatment of long-term bonds. 
D)  is unable to account for upward-sloping yield curves. 
A)  explains upward-sloping yield curves as resulting from the demand for long-term bonds being high relative to the demand for short-term bonds. 
B)  explains upward-sloping yield curves as resulting from the demand for long-term bonds being low relative to the demand for short-term bonds. 
C)  explains upward-sloping yield curves as resulting from the favorable tax treatment of long-term bonds. 
D)  is unable to account for upward-sloping yield curves.

Question 12

Government obligations,such as Treasury bills and bonds,have

Accepted Answer

A)  high liquidity and high information costs. 
B)  low liquidity and low information costs. 
C)  low liquidity and high information costs. 
D)  high liquidity and low information costs. 
A)  high liquidity and high information costs. 
B)  low liquidity and low information costs. 
C)  low liquidity and high information costs. 
D)  high liquidity and low information costs.

Question 13

If lenders anticipate no changes in liquidity,information costs,and tax differences,the yield on a risky security should be

Accepted Answer

A)  greater than that on a safe security and the price of a risky security should also be greater than that of a safe security. 
B)  less than that on a safe security and the price of a risky security should also be less than that of a safe security. 
C)  greater than that on a safe security and the price of a risky security should be lower than that of a safe security. 
D)  less than that on a safe security and the price of a risky security should be greater than that on a safe security. 
A)  greater than that on a safe security and the price of a risky security should also be greater than that of a safe security. 
B)  less than that on a safe security and the price of a risky security should also be less than that of a safe security. 
C)  greater than that on a safe security and the price of a risky security should be lower than that of a safe security. 
D)  less than that on a safe security and the price of a risky security should be greater than that on a safe security.

Question 14

If the three-month Treasury bill has an interest rate of 0.2%,the ten-tear Treasury bond has an interest rate of 2.75%,and a ten-year bond issued by Time Warner has an interest rate of 6%,what is the risk premium on Time Warner's bond?

Accepted Answer

The risk p

Question 15

A flight to quality refers to a shift by savers from

Accepted Answer

A)  bonds and into stocks. 
B)  stocks and into gold or other precious metals. 
C)  bonds and into real assets, such as real estate. 
D)  low-quality bonds and into high-quality bonds. 
A)  bonds and into stocks. 
B)  stocks and into gold or other precious metals. 
C)  bonds and into real assets, such as real estate. 
D)  low-quality bonds and into high-quality bonds.

Question 16

According to the liquidity premium theory

Accepted Answer

A)  investors prefer longer to shorter maturities. 
B)  investors prefer shorter to longer maturities. 
C)  investors are indifferent between short and long maturities. 
D)  investors are more interested in the tax treatment of bonds than they are in the liquidity of bonds. 
A)  investors prefer longer to shorter maturities. 
B)  investors prefer shorter to longer maturities. 
C)  investors are indifferent between short and long maturities. 
D)  investors are more interested in the tax treatment of bonds than they are in the liquidity of bonds.

Question 17

According to the liquidity premium theory,what does a flat yield curve indicate?

Accepted Answer

A)  Short-term interest rates are expected to remain stable. 
B)  Short-term interest rates are expected to rise. 
C)  Short-term interest rates are expected to fall. 
D)  Long-term interest rates are expected to fall. 
A)  Short-term interest rates are expected to remain stable. 
B)  Short-term interest rates are expected to rise. 
C)  Short-term interest rates are expected to fall. 
D)  Long-term interest rates are expected to fall.

Question 18

According to the liquidity premium theory,a steep yield curve may be an indicator of

Accepted Answer

A)  expectations of a significant increase in inflation. 
B)  an upcoming recession. 
C)  an economic slowdown. 
D)  lower future short-term interest rates. 
A)  expectations of a significant increase in inflation. 
B)  an upcoming recession. 
C)  an economic slowdown. 
D)  lower future short-term interest rates.

Question 19

A one-year bond has an interest rate of 3% and is expected to fall to 2.5% next year and 2% in two years.The term premium for a two-year bond is 0.3% and for a three-year bond is 0.5%.What are the interest rates on a two-year bond and three-year bond according to the liquidity premium theory?

Accepted Answer

A two-year bond will have an i

Question 20

Which of the following statements is true?

Accepted Answer

A)  The more liquid the bond, the lower the yield. 
B)  Tax-free bonds normally have a higher interest rate than other types of bonds. 
C)  The price of a bond increases as it becomes more risky. 
D)  The yield curve illustrates the relative default risks of alternative types of bonds. 
A)  The more liquid the bond, the lower the yield. 
B)  Tax-free bonds normally have a higher interest rate than other types of bonds. 
C)  The price of a bond increases as it becomes more risky. 
D)  The yield curve illustrates the relative default risks of alternative types of bonds.

For state residents,interest on most bonds issued by their state government is

In 2009,global investors began to regain confidence in the financial system and reversed the flight to safety that had taken place during the depths of the financial crisis.Make use of a graph of the market for corporate bonds to show the impact on corporate bonds prices and yields.

Suppose that savers become less willing to purchase medium-quality corporate bonds.The result will be that the prices of medium-quality corporate bonds will

Which of the following statements about junk (high-risk)bonds is true?

Which of the following is NOT true of the yield curve for U.S.Treasury securities?

If the expectations theory of the term structure is correct,would a reduction in the supply of thirty-year Treasury bonds affect their yields?

Currently,a three-year Treasury note pays 4.75%.Assuming that your tax rate is 20%,what is the minimum interest rate that you would you need to earn on a tax-free municipal bond in order to buy it instead?

Under the liquidity premium theory,the expectation that future short-term rates will be constant results in a yield curve that

Which of the following is the lowest rating given to an investment-grade bond by Moody's?

A company that retains a high bond rating during a recession in which many other companies see their bond ratings cut will experience

The segmented markets theory

Government obligations,such as Treasury bills and bonds,have

If lenders anticipate no changes in liquidity,information costs,and tax differences,the yield on a risky security should be

If the three-month Treasury bill has an interest rate of 0.2%,the ten-tear Treasury bond has an interest rate of 2.75%,and a ten-year bond issued by Time Warner has an interest rate of 6%,what is the risk premium on Time Warner's bond?

A flight to quality refers to a shift by savers from

According to the liquidity premium theory

According to the liquidity premium theory,what does a flat yield curve indicate?

According to the liquidity premium theory,a steep yield curve may be an indicator of

A one-year bond has an interest rate of 3% and is expected to fall to 2.5% next year and 2% in two years.The term premium for a two-year bond is 0.3% and for a three-year bond is 0.5%.What are the interest rates on a two-year bond and three-year bond according to the liquidity premium theory?

Which of the following statements is true?

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, mutual Funds, hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters

Exam 5: The Risk Structure and Term Structure of Interest Rates

For state residents,interest on most bonds issued by their state government is

In 2009,global investors began to regain confidence in the financial system and reversed the flight to safety that had taken place during the depths of the financial crisis.Make use of a graph of the market for corporate bonds to show the impact on corporate bonds prices and yields.

Suppose that savers become less willing to purchase medium-quality corporate bonds.The result will be that the prices of medium-quality corporate bonds will

Which of the following statements about junk (high-risk)bonds is true?

Which of the following is NOT true of the yield curve for U.S.Treasury securities?

If the expectations theory of the term structure is correct,would a reduction in the supply of thirty-year Treasury bonds affect their yields?

Currently,a three-year Treasury note pays 4.75%.Assuming that your tax rate is 20%,what is the minimum interest rate that you would you need to earn on a tax-free municipal bond in order to buy it instead?

Under the liquidity premium theory,the expectation that future short-term rates will be constant results in a yield curve that

Which of the following is the lowest rating given to an investment-grade bond by Moody's?

A company that retains a high bond rating during a recession in which many other companies see their bond ratings cut will experience

The segmented markets theory

Government obligations,such as Treasury bills and bonds,have

If lenders anticipate no changes in liquidity,information costs,and tax differences,the yield on a risky security should be

If the three-month Treasury bill has an interest rate of 0.2%,the ten-tear Treasury bond has an interest rate of 2.75%,and a ten-year bond issued by Time Warner has an interest rate of 6%,what is the risk premium on Time Warner's bond?

A flight to quality refers to a shift by savers from

According to the liquidity premium theory

According to the liquidity premium theory,what does a flat yield curve indicate?

According to the liquidity premium theory,a steep yield curve may be an indicator of

A one-year bond has an interest rate of 3% and is expected to fall to 2.5% next year and 2% in two years.The term premium for a two-year bond is 0.3% and for a three-year bond is 0.5%.What are the interest rates on a two-year bond and three-year bond according to the liquidity premium theory?

Which of the following statements is true?

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Stock Market, information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, mutual Funds, hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

The International Financial System and Monetary Policy

Monetary Theory I: the Aggregate Demand and Aggregate Supply Model

Monetary Theory Ii: the Is-Mp Model

Filters