Exam 7: The Risk and Term Structure of Interest Rates

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#1) The interest rates of different matu...

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A) Will become more upward sloping
B) Will become flat
C) Will be negative
D) Will be vertical

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A) Corporate bonds would rise
B) Municipal bonds would rise
C) Corporate bonds would fall while the price of municipal bonds would rise
D) Municipal bonds would fall while the price of corporate bonds would rise

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An economic slowdown should increase the...

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A) Always results in an upward sloping yield curve
B) Represents the variation in yields for securities differing in maturities
C) Usually results in a flat yield curve
D) Usually results in a downward sloping yield curve

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A) Cities only
B) The U.S. Treasury, but the proceeds can only be used by cities
C) States and cities, but their interest is taxable only at the federal level
D) States and cities and their interest is exempt from U.S. government taxation

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A) Is also known as the default-risk premium
B) Should have a direct relationship with the bond's price
C) Should have an inverse relationship with the bond's yield
D) Is always constant

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A) Yield curves usually slope upward
B) Interest rates on bonds of different maturities move together
C) Long-term interest rates are less volatile than short term interest rates
D) Yield curves are flat

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A) Equals the taxable bond yield times one minus the tax rate
B) Is equal to the yield on a U.S. 30-year bond
C) Is called the risk-free yield
D) Only applies to foreign bonds because they are exempt from U.S. income taxes

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Not really, a key assumption of the Expe...

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A) The future one-year rate to be 4%
B) The future one-year rate to be 8%
C) The future one-year rate to be 6%
D) The future one-year rate to be 5%

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A) There is no risk premium for longer-term maturities
B) Short-term interest rates are expected to remain constant
C) Short-term interest rates are expected to decrease
D) Long-term interest rates are higher than short-term interest rates

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A) Is negative for a U.S. Treasury bond
B) Is also known as the risk spread
C) Must always be greater than 0 (zero)
D) Is assigned by a bond-rating agency

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Inverted yield curves can be h...

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A) 3%
B) 5%
C) 4%
D) 8%

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A) Should vary directly with the bond's yield and inversely with its price
B) Is less than 0 (zero) for a U.S. Treasury bond
C) Should be lower for a highly speculative bond than for an investment-grade bond
D) Should vary directly with the bond's yield and the bond's price

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A) Long-term yields tend to higher than short term yields
B) Interest rates of different maturities tend to move together
C) Long-term rates tend to equal short-term rates
D) Yields on short-term securities are more volatile than yields on long-term bonds

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A) Never changes over the life of the bond
B) Can change as the financial position of the issuer changes
C) Can only change if the rating change is approved by the Securities and Exchange Commission
D) Can change on the next bond from the issuer but is fixed for the current bond

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