Question 1

Which of the following was an outcome of the announcement made by the U.S.government in October 2001 that it will stop selling 30-year bonds?

Accepted Answer

A) There was a sharp fall in the price of the securities and an increase in the yield to maturity. 
B) There was a sharp rise in the price of the securities and a decline in the yield to maturity. 
C) There was a sharp rise in the price of the securities and an increase in the yield to maturity. 
D) There was a sharp fall in the price of the securities and a decline in the yield to maturity. 
A) There was a sharp fall in the price of the securities and an increase in the yield to maturity. 
B) There was a sharp rise in the price of the securities and a decline in the yield to maturity. 
C) There was a sharp rise in the price of the securities and an increase in the yield to maturity. 
D) There was a sharp fall in the price of the securities and a decline in the yield to maturity. B

Question 2

Suppose that a risk-neutral investor has a choice between buying a one-year bond paying 4 percent today, a two- year bond paying 5 percent today, a three-year bond paying 5.3 percent today, or a four-year bond paying 5.8 percent today.The investor would buy

Accepted Answer

A) a one-year bond today. 
B) a two-year bond today. 
C) a three-year bond today. 
D) a four-year bond today. 
A) a one-year bond today. 
B) a two-year bond today. 
C) a three-year bond today. 
D) a four-year bond today. D

Question 3

If the interest rate on a one-year bond today is 7.5 percent and the expected interest rate on a one-year bond one year from now is ​5.6 percent, then the interest rate on a two­year bond will be

Accepted Answer

A) ​7 percent 
B) ​12.5 percent 
C) ​8.5 percent 
D) ​6.55 percent 
A) ​7 percent 
B) ​12.5 percent 
C) ​8.5 percent 
D) ​6.55 percent D

Question 4

What is the reason for a low rated security to generate a high yield to maturity?

Accepted Answer

Riskier bonds have higher interest rates

Question 5

Term spread is the interest rate on a long-term debt security_____the interest rate on a short-term debt security.

Accepted Answer

A) minus 
B) plus 
C) times 
D) divided by the interest rate on a short-term debt 
A) minus 
B) plus 
C) times 
D) divided by the interest rate on a short-term debt

Question 6

Which of the following is likely to happen to short-term and long-term interest rates during expansions?

Accepted Answer

A) Both the short-term and the long-term interest rates rise during expansions. 
B) The short-term interest rates fall during expansions but the long-term interest rates rise during expansions. 
C) Both the short-term and the long-term interest rates fall during expansions. 
D) The short-term interest rates rise during expansions but the long-term interest rates fall during expansions. 
A) Both the short-term and the long-term interest rates rise during expansions. 
B) The short-term interest rates fall during expansions but the long-term interest rates rise during expansions. 
C) Both the short-term and the long-term interest rates fall during expansions. 
D) The short-term interest rates rise during expansions but the long-term interest rates fall during expansions.

Question 7

The analysis of the term structure of interest rates assumes that​

Accepted Answer

A) ​there is uncertainty about future interest rates. 
B) ​there is no risk involved in the purchase and sale of long­term securities. 
C) ​short­term and long­term securities offer the same rate of interest. 
D) ​there are no transaction costs. 
A) ​there is uncertainty about future interest rates. 
B) ​there is no risk involved in the purchase and sale of long­term securities. 
C) ​short­term and long­term securities offer the same rate of interest. 
D) ​there are no transaction costs.

Question 8

Term premium refers to

Accepted Answer

A) the interest rate on a long-term bond minus the average interest rate on future short-term bonds. 
B) the interest rate on a long-term bond plus the average interest rate on future short-term bonds. 
C) the average interest rate on future short-term bonds. 
D) the standard deviation of the interest rate on long-term bonds. 
A) the interest rate on a long-term bond minus the average interest rate on future short-term bonds. 
B) the interest rate on a long-term bond plus the average interest rate on future short-term bonds. 
C) the average interest rate on future short-term bonds. 
D) the standard deviation of the interest rate on long-term bonds.

Question 9

What do steep upward-sloping yield curves indicate about the business cycle?

Accepted Answer

A steep upward-sloping yield curve indic

Question 10

Consider the following hypothetical situation.The interest rate on a two-year bond today is 7.5 percent and the interest rates on two one-year bonds are 3 percent and 4 percent respectively.The term premium earned by the investors is

Accepted Answer

A) 5 percent. 
B) 4 percent. 
C) 4.25 percent. 
D) 6 percent. 
A) 5 percent. 
B) 4 percent. 
C) 4.25 percent. 
D) 6 percent.

Question 11

​Which of the following is a possible outcome of a fall in the demand for a security?

Accepted Answer

A) ​It will lead to an increase in the price and the yield to maturity of the security. 
B) ​It will lead to an increase in the price of the security and a fall in its yield to maturity. 
C) ​It will lead to a fall in the price of the security and a fall in its yield to maturity. 
D) ​It will lead to a fall in the price of the security and an increase in its yield to maturity. 
A) ​It will lead to an increase in the price and the yield to maturity of the security. 
B) ​It will lead to an increase in the price of the security and a fall in its yield to maturity. 
C) ​It will lead to a fall in the price of the security and a fall in its yield to maturity. 
D) ​It will lead to a fall in the price of the security and an increase in its yield to maturity.

Question 12

According to the expectations theory of the term structure of interest rates, if the interest rate on a one-year bond today is 3.0 percent, the expected interest rate on a one-year bond one year from now is 4.0 percent, and the expected interest rate on a one-year bond two years from now is 4.5 percent, then the interest rate on a two-year bond today is

Accepted Answer

A) 3.00 percent. 
B) 3.50 percent. 
C) 3.83 percent. 
D) 4.00 percent. 
A) 3.00 percent. 
B) 3.50 percent. 
C) 3.83 percent. 
D) 4.00 percent.

Question 13

Which of the following bonds has a comparatively higher yield to maturity?​

Accepted Answer

A) ​A one­year bond with a 6.7 percent interest today 
B) ​A three­year bond with a 5 percent interest today 
C) ​A two­year bond with a 4 percent interest today 
D) ​A four­year bond with a 4.5 percent interest today 
A) ​A one­year bond with a 6.7 percent interest today 
B) ​A three­year bond with a 5 percent interest today 
C) ​A two­year bond with a 4 percent interest today 
D) ​A four­year bond with a 4.5 percent interest today

Question 14

Which of the following securities has the highest yield to maturity?

Accepted Answer

A) An on-the-run Treasury bond with ten years to maturity 
B) An on-the-run Treasury bond with twenty years to maturity 
C) An off­the­run Treasury bond with twenty­four years to maturity​ 
D) An off-the-run Treasury bond with twelve years to maturity 
A) An on-the-run Treasury bond with ten years to maturity 
B) An on-the-run Treasury bond with twenty years to maturity 
C) An off­the­run Treasury bond with twenty­four years to maturity​ 
D) An off-the-run Treasury bond with twelve years to maturity

Question 15

Which of the following bonds has the greatest interest-rate risk?

Accepted Answer

A) A one-year bond 
B) A five-year bond 
C) A ten-year bond 
D) A thirty-year bond 
A) A one-year bond 
B) A five-year bond 
C) A ten-year bond 
D) A thirty-year bond

Question 16

A basis point equals

Accepted Answer

A) one hundredth of a percentage point. 
B) one tenth of a percentage point. 
C) one half of a percentage point. 
D) ten percentage points. 
A) one hundredth of a percentage point. 
B) one tenth of a percentage point. 
C) one half of a percentage point. 
D) ten percentage points.

Question 17

Which of the following is a security in which a saver buys the security for a given time to maturity, earning interest at the specified rate?

Accepted Answer

A) Commercial paper 
B) Debenture 
C) Government bond 
D) Certificates of deposit 
A) Commercial paper 
B) Debenture 
C) Government bond 
D) Certificates of deposit

Question 18

If the interest rate on three-month Treasury securities is 6 percent and the interest rate on ten-year Treasury securities is 4 percent, then

Accepted Answer

A) the economy has probably just emerged from a recession. 
B) the yield curve slopes upward steeply. 
C) a recession is likely to occur. 
D) the economy is probably in the middle of an economic expansion. 
A) the economy has probably just emerged from a recession. 
B) the yield curve slopes upward steeply. 
C) a recession is likely to occur. 
D) the economy is probably in the middle of an economic expansion.

Question 19

When an economic expansion has been going on for several years, you are likely to observe that

Accepted Answer

A) the yield curve is sharply upward sloping. 
B) the yield curve is somewhat upward sloping. 
C) the yield curve is flat or inverted. 
D) the yield curve is a vertical straight line. 
A) the yield curve is sharply upward sloping. 
B) the yield curve is somewhat upward sloping. 
C) the yield curve is flat or inverted. 
D) the yield curve is a vertical straight line.

Question 20

Suppose an investor purchases a one-year bond today, for $960.The bond promises a return of $1,000.She purchases another one-year bond, after a year, for $887 that promises a return of $990.What is the yield to maturity earned by the investor on the purchase of these two short­term bonds?​

Accepted Answer

A) ​6.50 percent 
B) ​7.85 percent 
C) ​8 percent 
D) ​10 percent 
A) ​6.50 percent 
B) ​7.85 percent 
C) ​8 percent 
D) ​10 percent

Which of the following was an outcome of the announcement made by the U.S.government in October 2001 that it will stop selling 30-year bonds?

Suppose that a risk-neutral investor has a choice between buying a one-year bond paying 4 percent today, a two- year bond paying 5 percent today, a three-year bond paying 5.3 percent today, or a four-year bond paying 5.8 percent today.The investor would buy

If the interest rate on a one-year bond today is 7.5 percent and the expected interest rate on a one-year bond one year from now is 5.6 percent, then the interest rate on a twoyear bond will be

What is the reason for a low rated security to generate a high yield to maturity?

Term spread is the interest rate on a long-term debt security_____the interest rate on a short-term debt security.

Which of the following is likely to happen to short-term and long-term interest rates during expansions?

The analysis of the term structure of interest rates assumes that

Term premium refers to

What do steep upward-sloping yield curves indicate about the business cycle?

Consider the following hypothetical situation.The interest rate on a two-year bond today is 7.5 percent and the interest rates on two one-year bonds are 3 percent and 4 percent respectively.The term premium earned by the investors is

Which of the following is a possible outcome of a fall in the demand for a security?

Which of the following bonds has a comparatively higher yield to maturity?

Which of the following securities has the highest yield to maturity?

Which of the following bonds has the greatest interest-rate risk?

A basis point equals

Which of the following is a security in which a saver buys the security for a given time to maturity, earning interest at the specified rate?

If the interest rate on three-month Treasury securities is 6 percent and the interest rate on ten-year Treasury securities is 4 percent, then

When an economic expansion has been going on for several years, you are likely to observe that

Suppose an investor purchases a one-year bond today, for $960.The bond promises a return of $1,000.She purchases another one-year bond, after a year, for $887 that promises a return of $990.What is the yield to maturity earned by the investor on the purchase of these two shortterm bonds?

Money and the Financial System

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Money and Payments

Present Value

Real Interest Rates

Stocks and Other Assets

How Banks Work

Governments Role in Banking

Economics Growth and Business Cycles

Modeling Money

The Aggregate-Demandaggregate-Supply Model

Modern Macroeconomic Models

Economic Interdependence

The Federal Reserve System

Monetary Control

Monetary Policy: Goals and Tradeoffs

Rules for Monetary Policy

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Exam 5: The Structure of Interest Rates

Which of the following was an outcome of the announcement made by the U.S.government in October 2001 that it will stop selling 30-year bonds?

Suppose that a risk-neutral investor has a choice between buying a one-year bond paying 4 percent today, a two- year bond paying 5 percent today, a three-year bond paying 5.3 percent today, or a four-year bond paying 5.8 percent today.The investor would buy

If the interest rate on a one-year bond today is 7.5 percent and the expected interest rate on a one-year bond one year from now is ​5.6 percent, then the interest rate on a two­year bond will be

What is the reason for a low rated security to generate a high yield to maturity?

Term spread is the interest rate on a long-term debt security_____the interest rate on a short-term debt security.

Which of the following is likely to happen to short-term and long-term interest rates during expansions?

The analysis of the term structure of interest rates assumes that​

Term premium refers to

What do steep upward-sloping yield curves indicate about the business cycle?

Consider the following hypothetical situation.The interest rate on a two-year bond today is 7.5 percent and the interest rates on two one-year bonds are 3 percent and 4 percent respectively.The term premium earned by the investors is

​Which of the following is a possible outcome of a fall in the demand for a security?

Which of the following bonds has a comparatively higher yield to maturity?​

Which of the following securities has the highest yield to maturity?

Which of the following bonds has the greatest interest-rate risk?

A basis point equals

Which of the following is a security in which a saver buys the security for a given time to maturity, earning interest at the specified rate?

If the interest rate on three-month Treasury securities is 6 percent and the interest rate on ten-year Treasury securities is 4 percent, then

When an economic expansion has been going on for several years, you are likely to observe that

Suppose an investor purchases a one-year bond today, for $960.The bond promises a return of $1,000.She purchases another one-year bond, after a year, for $887 that promises a return of $990.What is the yield to maturity earned by the investor on the purchase of these two short­term bonds?​

Money and the Financial System

The Financial System and the Economy

Money and Payments

Present Value

Real Interest Rates

Stocks and Other Assets

How Banks Work

Governments Role in Banking

Economics Growth and Business Cycles

Modeling Money

The Aggregate-Demandaggregate-Supply Model

Modern Macroeconomic Models

Economic Interdependence

The Federal Reserve System

Monetary Control

Monetary Policy: Goals and Tradeoffs

Rules for Monetary Policy

Filters

If the interest rate on a one-year bond today is 7.5 percent and the expected interest rate on a one-year bond one year from now is 5.6 percent, then the interest rate on a twoyear bond will be

The analysis of the term structure of interest rates assumes that

Which of the following is a possible outcome of a fall in the demand for a security?

Which of the following bonds has a comparatively higher yield to maturity?

Suppose an investor purchases a one-year bond today, for $960.The bond promises a return of $1,000.She purchases another one-year bond, after a year, for $887 that promises a return of $990.What is the yield to maturity earned by the investor on the purchase of these two shortterm bonds?