Exam 5: The Structure of Interest Rates

Put the following securities in order according to their after-tax interest rates, from lowest to highest.The federal tax rate on interest income is 30 percent.Show your work. A: A corporate bond that pays an interest rate of 6 percent.B: A corporate bond that pays an interest rate of 7 percent. C: A local government bond identical that pays an interest rate of 4.5 percent.

Consider the bond market to be in equilibrium according to our complete theory of the term structure of interest rates.The current interest rate on one-year bonds is 3.0 percent, and you believe, as does everyone in the market, that in one year the interest rate on one-year bonds will be 3.5 percent.Assume that there is no term premium on a one-year bond.Suppose there is a term premium equals 0.75 percent × the number of years to maturity, for the two- year bond.The interest rate today on the two-year bond is

An on-the-run ten-year Treasury security is

Which of the following statements is true?

The present value of a two­year bond with a future payment of $1,345.50 and the yield to maturity of 3.6 percent is​

A sharp upward sloping yield curve indicates that

If the interest rate on three-month Treasury securities is 5 percent and the interest rate on ten-year Treasury securities is 6 percent, then the odds of a recession are

A corporate bond with a financial rating of _____ is likely to have the lowest yield to maturity.?

Consider a two-year bond that can be purchased for $550.What is the yield to maturity on the bond if it promises a payment of $890 in two years?​

Which of the following bonds is likely to have the highest term premium?

Which of the following is true of the yield curve?

The relationship between interest rates with differing times to maturity is known as the ___________of interest rates.

Which of the following is true of a certificate of deposit?

The U.S.Treasury security that was issued most recently, in the primary market, is known as the

Compare a two-year bond with two successive one-year bonds, in which an investor buys a one-year bond today, then another one-year bond when the first matures.Suppose the two-year bond has an annual interest rate of 4 percent. Consider the pattern of interest rates on the one-year bonds listed below and explain whether an investor should buy the two-year bond or the one-year bond today, assuming that the only thing that matters to the investor is the amount of money she has at the end of the two years; that is, she is risk neutral.In each case, how much would an investor have at the end of two years if she invested $1,000 today? Show your work.Round to the nearest penny ($0.01).In each case be sure to say which bond the investor would buy today. a.The interest rate on a one-year bond today is 1 percent, and the interest rate on a one-year bond purchased in one year from now is 8 percent. b.The interest rate on a one-year bond today is 2 percent; and the interest rate on a one-year bond purchased one-year from now is 6 percent. c.The interest rate on a one-year bond today is 3 percent; and the interest rate on a one-year bond purchased one-year from now is 5 percent. d.The interest rate on a one-year bond today is 5 percent; nd the interest rate on a one-year bond purchased one-year from now is 3 percent.

A debt security sold by large corporations to raise short­term funds is known as a(n)​

What does a yield curve show?