Question 1

Which of the following is not considered a major credit-rating agency?

Accepted Answer

A) Standard & Poor's 
B) Moody's Investors Service 
C) New York Exchange Service 
D) All of the above are major credit-rating agencies.

Question 2

The premium rewarded to purchasers for accepting more risk is referred to as which of the following?

Accepted Answer

A) liquidity premium 
B) risk premium 
C) credit premium 
D) contingency premium

Question 3

__________ suggests that the long-term interest rate is the geometric average of the present short-term rate and the short-term rates expected to prevail over the term to maturity of the long-term security.

Accepted Answer

A) The term structure of interest rates 
B) The geometric average theory 
C) The expectations theory 
D) The preferred habitat theory

Question 4

Typically, the yields on municipal securities are

Accepted Answer

A) well above the yields on other securities with similar credit ratings and similar terms to maturity. 
B) well below the yields on other securities with similar credit ratings and similar terms to maturity. 
C) taxed at both the state and federal level. 
D) about the same as the yields on other securities with similar credit ratings and similar terms to maturity.

Question 5

__________ postulates that many borrowers and lenders favor securities that have maturities of a particular length. This favoritism creates a degree of market segmentation between the short-term and long-term securities markets.

Accepted Answer

A) The term structure of interest rates 
B) The geometric average theory 
C) The expectations theory 
D) The preferred habitat theory

Question 6

Which security has the least credit risk?

Accepted Answer

A) Common stock 
B) Treasury securities 
C) Preferred stock 
D) Equities

Question 7

The current long-term interest rate is a function of all of the following except

Accepted Answer

A) the current short-term rate. 
B) the short-term rates expected in the future. 
C) last year's long-term rate. 
D) the liquidity premium.

Question 8

Which of these is a major corporate credit-rating agency that evaluates a borrower's probability of default and assigns the borrower to a particular risk class?

Accepted Answer

A) Dow Jones Industrial Average (DJI
A)  
B) Moody's Investors Services 
C) FDIC 
D) Dow Jones Investor Service (DJIS)

Question 9

The expected short-term interest rate is inversely related to expectations about future

Accepted Answer

A) national income. 
B) money supply. 
C) surpluses. 
D) inflation.

Question 10

Treasury bills (T-bills) carry maturities of

Accepted Answer

A) less than 6 months. 
B) 1 year or less. 
C) less than 2 years. 
D) less than 5 years.

Question 11

-Refer to Figures A, B, and C. According to expectations theory, which of the figures reflects expectations that the short-term interest rate is expected to remain constant in the future?

Accepted Answer

A) Figure A 
B) Figure B 
C) Figure C 
D)  Both a and b

Question 12

The hypothesis that the markets for short- and long-term securities are completely separate markets is called the

Accepted Answer

A) stationary equilibrium hypothesis 
B) preferred habitat hypothesis 
C) the liquidity premium hypothesis 
D) segmented market hypothesis

Question 13

Which of these is a major corporate credit-rating agency that evaluates a borrower's probability of default and assigns the borrower to a particular risk class?

Accepted Answer

A) Dow Jones Industrial Average (DJI
A)  
B) Standard & Poor's 
C) the FDIC 
D) the Federal Reserve System

Question 14

The __________ is the extra return or interest with which a lender is compensated for accepting more risk.

Accepted Answer

A) risk premium 
B) liquidity premium 
C) credit risk 
D) liquidity risk

Question 15

The pattern or spread among interest rates is usually referred to as the

Accepted Answer

A) term to maturity. 
B) credit risk. 
C) term structure of interest rates. 
D) yield to maturity.

Question 16

What happens to the shape of the yield curve if, ceteris paribus, expectations about future interest rates change such that future short term interest rates are expected to be higher than previously expected?

Accepted Answer

A) the slope (shape) of the yield curve remains the same but the curve shifts up. 
B) the differences among various yield curves narrows. 
C) the yield curve becomes steeper. 
D) Both a and b are correct.

Question 17

When the yield curve is downward sloping or inverted, this means

Accepted Answer

A) Short-term securities yield more than long-term securities. 
B) Short -term securities yield less than long-term securities. 
C) Short -term securities yield the same as long-term securities. 
D) None of the above are correct.

Question 18

Typically, an individual asset is depicted on

Accepted Answer

A) a single yield curve. 
B) two yield curves combined. 
C) three yield curves combined. 
D) several yield curves.

Question 19

Ratings and classifications of borrowers are determined by the borrowers'

Accepted Answer

A) patterns in profits and costs. 
B) leverage ratios. 
C) past debt redemption. 
D) All of the above are correct.

Question 20

The tax rate paid on the last dollar of income that the taxpayer earns is the

Accepted Answer

A) IRS discount rate. 
B) average tax rate. 
C) average marginal tax rate. 
D) marginal tax rate.

Exam 6: The Structure of Interest Rates

Which of the following is not considered a major credit-rating agency?

The premium rewarded to purchasers for accepting more risk is referred to as which of the following?

__________ suggests that the long-term interest rate is the geometric average of the present short-term rate and the short-term rates expected to prevail over the term to maturity of the long-term security.

Typically, the yields on municipal securities are

__________ postulates that many borrowers and lenders favor securities that have maturities of a particular length. This favoritism creates a degree of market segmentation between the short-term and long-term securities markets.

Which security has the least credit risk?

The current long-term interest rate is a function of all of the following except

Which of these is a major corporate credit-rating agency that evaluates a borrower's probability of default and assigns the borrower to a particular risk class?

The expected short-term interest rate is inversely related to expectations about future

Treasury bills (T-bills) carry maturities of

-Refer to Figures A, B, and C. According to expectations theory, which of the figures reflects expectations that the short-term interest rate is expected to remain constant in the future?

The hypothesis that the markets for short- and long-term securities are completely separate markets is called the

Which of these is a major corporate credit-rating agency that evaluates a borrower's probability of default and assigns the borrower to a particular risk class?

The __________ is the extra return or interest with which a lender is compensated for accepting more risk.

The pattern or spread among interest rates is usually referred to as the

What happens to the shape of the yield curve if, ceteris paribus, expectations about future interest rates change such that future short term interest rates are expected to be higher than previously expected?

When the yield curve is downward sloping or inverted, this means

Typically, an individual asset is depicted on

Ratings and classifications of borrowers are determined by the borrowers'

The tax rate paid on the last dollar of income that the taxpayer earns is the