If investors expect interest rates to fall significantly in the future, the yield curve will be inverted. This means that the yield curve has a ________ slope.

If investors expect interest rates to fall significantly in the future, the yield curve will be inverted. This means that the yield curve has a ________...

When short-term interest rates are expected to fall sharply in the future, the yield curve will

When short-term interest rates are expected to fall sharply in the future, the yield curve will  A) slope up. B) be flat. C) be inverted. D)...

An inverted yield curve predicts that short-term interest rates

An inverted yield curve predicts that short-term interest rates  A) are expected to rise in the future. B) will rise and then fall in the future. C)...

The inverted U-shaped yield curve in the figure above indicates that the inflation rate is expected to

The inverted U-shaped yield curve in the figure above indicates that the inflation rate is expected to A) remain constant in the near-term and fall...

The inverted U-shaped yield curve in the figure above indicates that short-term interest rates are expected to

The inverted U-shaped yield curve in the figure above indicates that short-term interest rates are expected to A) rise in the near-term and fall...

The U-shaped yield curve in the figure above indicates that the inflation rate is expected to

The U-shaped yield curve in the figure above indicates that the inflation rate is expected to  A) remain constant in the near-term and fall...

The U-shaped yield curve in the figure above indicates that short-term interest rates are expected to

The U-shaped yield curve in the figure above indicates that short-term interest rates are expected to A) rise in the near-term and fall later on. B)...

The steeply upward sloping yield curve in the figure above indicates that ________ interest rates are expected to ________ in the future.

The steeply upward sloping yield curve in the figure above indicates that ________ interest rates are expected to ________ in the future. A) short-term;...

The steeply upward sloping yield curve in the figure above indicates that

The steeply upward sloping yield curve in the figure above indicates that  A) short-term interest rates are expected to rise in the future. B)...

Economists' attempts to explain the term structure of interest rates

Economists' attempts to explain the term structure of interest rates A) illustrate how economists modify theories to improve them when they are inconsistent...

According to the liquidity premium theory, a yield curve that is flat means that

According to the liquidity premium theory, a yield curve that is flat means that  A) bond purchasers expect interest rates to rise in the future. B)...

Particularly attractive feature of the ________ is that it tells you what the market is predicting about future short-term interest rates by just looking at the slope of the yield curve.

Particularly attractive feature of the ________ is that it tells you what the market is predicting about future short-term interest rates by just looking...

The ________ of the term structure states the following: the interest rate on a long-term bond will equal an average of short-term interest rates expected to occur over the life of the long-term bond plus a term premium that responds to supply and demand conditions for that bond.

The ________ of the term structure states the following: the interest rate on a long-term bond will equal an average of short-term interest rates expected...

According to this theory of the term structure, bonds of different maturities are not substitutes for one another.

According to this theory of the term structure, bonds of different maturities are not substitutes for one another. A) Segmented markets theory B)...

In actual practice, short-term interest rates and long-term interest rates usually move together; this is the major shortcoming of the

In actual practice, short-term interest rates and long-term interest rates usually move together; this is the major shortcoming of the A) segmented...

The ________ of the term structure of interest rates states that the interest rate on a long -term bond will equal the average of short-term interest rates that individuals expect to occur over the life of the long-term bond, and investors have no preference for short-term bonds relative to long-term bonds.

The ________ of the term structure of interest rates states that the interest rate on a long -term bond will equal the average of short-term interest...

The expectations theory and the segmented markets theory do not explain the facts very well, but they provide the groundwork for the most widely accepted theory of the term structure of interest rates,

The expectations theory and the segmented markets theory do not explain the facts very well, but they provide the groundwork for the most widely accepted...

The preferred habitat theory of the term structure is closely related to the

The preferred habitat theory of the term structure is closely related to the  A) expectations theory of the term structure. B) segmented markets...

According to the liquidity premium theory of the term structure, a downward sloping yield curve indicates that short-term interest rates are expected to

According to the liquidity premium theory of the term structure, a downward sloping yield curve indicates that short-term interest rates are expected...

According to the liquidity premium theory of the term structure, a flat yield curve indicates that short-term interest rates are expected to

According to the liquidity premium theory of the term structure, a flat yield curve indicates that short-term interest rates are expected to A) rise...

According to the liquidity premium theory of the term structure, a slightly upward sloping yield curve indicates that short-term interest rates are expected to

According to the liquidity premium theory of the term structure, a slightly upward sloping yield curve indicates that short-term interest rates are...

According to the liquidity premium theory of the term structure, a steeply upward sloping yield curve indicates that short-term interest rates are expected to

According to the liquidity premium theory of the term structure, a steeply upward sloping yield curve indicates that short-term interest rates are expected...

If the yield curve has a mild upward slope, the liquidity premium theory (assuming a mild preference for shorter-term bonds) indicates that the market is predicting

If the yield curve has a mild upward slope, the liquidity premium theory (assuming a mild preference for shorter-term bonds) indicates that the market...

If the yield curve slope is flat, the liquidity premium theory (assuming a mild preference for shorter-term bonds) indicates that the market is predicting

If the yield curve slope is flat, the liquidity premium theory (assuming a mild preference for shorter-term bonds) indicates that the market is predicting A)...

If the yield curve is flat for short maturities and then slopes downward for longer maturities, the liquidity premium theory (assuming a mild preference for shorter-term bonds) indicates that the market is predicting.If the yield curve is flat for short maturities and then slopes downward for longer maturities, the liquidity premium theory (assuming a mild preference for shorter-term bonds) indicates that the market is predicting.

If the yield curve is flat for short maturities and then slopes downward for longer maturities, the liquidity premium theory (assuming a mild preference...

If 1-year interest rates for the next five years are expected to be 4, 2, 5, 4, and 5 percent, and the 5-year term premium is 1 percent, than the 5-year bond rate will be

If 1-year interest rates for the next five years are expected to be 4, 2, 5, 4, and 5 percent, and the 5-year term premium is 1 percent, than the 5-year...

If 1-year interest rates for the next three years are expected to be 4, 2, and 3 percent, and the 3-year term premium is 1 percent, than the 3-year bond rate will be

If 1-year interest rates for the next three years are expected to be 4, 2, and 3 percent, and the 3-year term premium is 1 percent, than the 3-year...

The additional incentive that the purchaser of a Treasury security requires to buy a long -term security rather than a short-term security is called the

The additional incentive that the purchaser of a Treasury security requires to buy a long -term security rather than a short-term security is called...

According to the liquidity premium theory of the term structure

According to the liquidity premium theory of the term structure  A) bonds of different maturities are not substitutes. B) if yield curves are...

According to the liquidity premium theory of the term structure

According to the liquidity premium theory of the term structure A) because buyers of bonds may prefer bonds of one maturity over another, interest...

According to the segmented markets theory of the term structure

According to the segmented markets theory of the term structure A) bonds of one maturity are close substitutes for bonds of other maturities, therefore,...

According to the segmented markets theory of the term structure

According to the segmented markets theory of the term structure  A) the interest rate on long-term bonds will equal an average of shot-term interest...

Over the next three years, the expected path of 1-year interest rates is 4, 1, and 1 percent. The expectations theory of the term structure predicts that the current interest rate on 3-year bond is

Over the next three years, the expected path of 1-year interest rates is 4, 1, and 1 percent. The expectations theory of the term structure predicts...

If the expected path of 1-year interest rates over the next five years is 2 percent, 4 percent, 1 percent, 4 percent, and 3 percent, the expectations theory predicts that the bond with the lowest interest rate today is the one with a maturity of

If the expected path of 1-year interest rates over the next five years is 2 percent, 4 percent, 1 percent, 4 percent, and 3 percent, the expectations...

If the expected path of 1-year interest rates over the next five years is 1 percent, 2 percent, 3 percent, 4 percent, and 5 percent, the expectations theory predicts that the bond with the highest interest rate today is the one with a maturity of

If the expected path of 1-year interest rates over the next five years is 1 percent, 2 percent, 3 percent, 4 percent, and 5 percent, the expectations...

If the expected path of 1-year interest rates over the next four years is 5 percent, 4 percent, 2 percent, and 1 percent, then the expectations theory predicts that today's interest rate on the four-year bond is

If the expected path of 1-year interest rates over the next four years is 5 percent, 4 percent, 2 percent, and 1 percent, then the expectations theory...

If the expected path of one-year interest rates over the next five years is 4 percent, 5 percent, 7 percent, 8 percent, and 6 percent, then the expectations theory predicts that today's interest rate on the five-year bond is

If the expected path of one-year interest rates over the next five years is 4 percent, 5 percent, 7 percent, 8 percent, and 6 percent, then the expectations...

According to the expectations theory of the term structure

According to the expectations theory of the term structure A) when the yield curve is steeply upward sloping, short-term inerest rates are expected...

According to the expectations theory of the term structure

According to the expectations theory of the term structure A) the interest rate on long-term bonds will exceed the average of short-term interest...

An inverted yield curve

An inverted yield curve  A) slopes up. B) is flat. C) slopes down. D) has a U shape. Answer: ...

When yield curves are flat,

When yield curves are flat,  A) long-term interest rates are above short-term interest rates. B) short-term interest rates are above long-term...

When yield curves are downward sloping,

When yield curves are downward sloping,  A) long-term interest rates are above short-term interest rates. B) short-term interest rates are above...

When yield curves are steeply upward sloping,

When yield curves are steeply upward sloping,  A) long-term interest rates are above short-term interest rates. B) short-term interest rates...

Typically, yield curves are

Typically, yield curves are  A) gently upward sloping. B) mound shaped. C) flat. D) bowl shaped. Answer: ...

Differences in ________ explain why interest rates on Treasury securities are not all the same.

Differences in ________ explain why interest rates on Treasury securities are not all the same.  A) risk B) liquidity C) time to maturity D)...

A plot of the interest rates on default-free government bonds with different terms to maturity is called

A plot of the interest rates on default-free government bonds with different terms to maturity is called A) a risk-structure curve. B) a default-free...

The term structure of interest rates is

The term structure of interest rates is  A) the relationship among interest rates of different bonds with the same maturity. B) the structure...

Explain this difference using the bond supply and demand analysis.

The spread between the interest rates on Baa corporate bonds and U.S. government bonds is very large during the Great Depression years 1930-1933. Explain...

Three factors explain the risk structure of interest rates:

Three factors explain the risk structure of interest rates:  A) liquidity, default risk, and the income tax treatment of a security. B) maturity,...

Which of the following statements is true?

Which of the following statements is true? A) State and local governments cannot default on their bonds. B) Bonds issued by state and local governments...

Everything else held constant, if the tax-exempt status of municipal bonds were eliminated, then

Everything else held constant, if the tax-exempt status of municipal bonds were eliminated, then A) the interest rates on municipal bonds would still...

Municipal bonds have default risk, yet their interest rates are lower than the rates on default-free Treasury bonds. This suggests that

Municipal bonds have default risk, yet their interest rates are lower than the rates on default-free Treasury bonds. This suggests that A) the benefit...

Everything else held constant, abolishing all taxes will

Everything else held constant, abolishing all taxes will  A) increase the interest rate on corporate bonds. B) reduce the interest rate on municipal...

Everything else held constant, if income tax rates were lowered, then

Everything else held constant, if income tax rates were lowered, then  A) the interest rate on municipal bonds would fall. B) the interest rate...

Everything else held constant, the interest rate on municipal bonds rises relative to the interest rate on Treasury securities when

Everything else held constant, the interest rate on municipal bonds rises relative to the interest rate on Treasury securities when A) income tax...

Which of the following statements are true?

Which of the following statements are true? A) An increase in tax rates will increase the demand for Treasury bonds, lowering their interest rates. B)...

Everything else held constant, an increase in marginal tax rates would likely have the effect of ________ the demand for municipal bonds, and ________ the demand for U.S. government bonds.

Everything else held constant, an increase in marginal tax rates would likely have the effect of ________ the demand for municipal bonds, and ________...

The risk premium on corporate bonds reflects the fact that corporate bonds have a higher default risk and are ________ U.S. Treasury bonds.

The risk premium on corporate bonds reflects the fact that corporate bonds have a higher default risk and are ________ U.S. Treasury bonds. A) less...

An increase in the liquidity of corporate bonds will ________ the price of corporate bonds and ________ the yield of Treasury bonds, everything else held constant.

An increase in the liquidity of corporate bonds will ________ the price of corporate bonds and ________ the yield of Treasury bonds, everything else...

A decrease in the liquidity of corporate bonds, other things being equal, shifts the demand curve for corporate bonds to the ________ and the demand curve for Treasury bonds shifts to the ________.

A decrease in the liquidity of corporate bonds, other things being equal, shifts the demand curve for corporate bonds to the ________ and the demand...

When the Treasury bond market becomes more liquid, other things equal, the demand curve for corporate bonds shifts to the ________ and the demand curve for Treasury bonds shifts to the ________.

When the Treasury bond market becomes more liquid, other things equal, the demand curve for corporate bonds shifts to the ________ and the demand curve...

Corporate bonds are not as liquid as government bonds because

Corporate bonds are not as liquid as government bonds because A) fewer corporate bonds for any one corporation are traded, making them more costly...

Which of the following statements are true?

Which of the following statements are true?  A) A liquid asset is one that can be quickly and cheaply converted into cash. B) The demand for...

Risk premiums on corporate bonds tend to ________ during business cycle expansions and ________ during recessions, everything else held constant.

Risk premiums on corporate bonds tend to ________ during business cycle expansions and ________ during recessions, everything else held constant. A)...

During the Great Depression years 1930-1933 there was a very high rate of business failures and defaults, we would expect the risk premium for ________ bonds to be very high.

During the Great Depression years 1930-1933 there was a very high rate of business failures and defaults, we would expect the risk premium for ________...

The spread between interest rates on low quality corporate bonds and U.S. government bonds

The spread between interest rates on low quality corporate bonds and U.S. government bonds  A) widened significantly during the Great Depression. B)...

If you have a very low tolerance for risk, which of the following bonds would you be least likely to hold in your portfolio?

If you have a very low tolerance for risk, which of the following bonds would you be least likely to hold in your portfolio? A) a U.S. Treasury bond B)...

During a "flight to quality"

During a "flight to quality"  A) the spread between Aaa and Baa bonds increases. B) the spread between Aaa and Baa bonds decreases. C) the spread...

The bankruptcy of the Enron Corporation increased the spread between Baa and Aaa rated bonds. This is due to

The bankruptcy of the Enron Corporation increased the spread between Baa and Aaa rated bonds. This is due to A) a reduction in risk. B) a reduction...

The bankruptcy of the Enron Corporation

The bankruptcy of the Enron Corporation  A) did not affect the corporate bond market. B) increased the perceived riskiness of Treasury securities. C)...

Which of the following short-term securities has the lowest interest rate?

Which of the following short-term securities has the lowest interest rate?  A) Banker's acceptances B) U.S. Treasury bills C) Negotiable certificates...

Which of the following long-term bonds has the highest interest rate?

Which of the following long-term bonds has the highest interest rate?  A) Corporate Baa bonds B) U.S. Treasury bonds C) Corporate Aaa bonds D)...

Which of the following bonds would have the highest default risk?

Which of the following bonds would have the highest default risk?  A) Municipal bonds B) Investment-grade bonds C) U.S. Treasury bonds D) Junk...

Bonds with relatively low risk of default are called ________ securities and have a rating of Baa (or BBB) and above; bonds with ratings below Baa (or BBB) have a higher default risk and are called ________.

Bonds with relatively low risk of default are called ________ securities and have a rating of Baa (or BBB) and above; bonds with ratings below Baa (or...

Bonds with relatively high risk of default are called

Bonds with relatively high risk of default are called  A) Brady bonds. B) junk bonds. C) zero coupon bonds. D) investment grade bonds. Answer:...

Everything else held constant, if the federal government were to guarantee today that it will pay creditors if a corporation goes bankrupt in the future, the interest rate on corporate bonds will ________ and the interest rate on Treasury securities will ________.

Everything else held constant, if the federal government were to guarantee today that it will pay creditors if a corporation goes bankrupt in the future,...