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1 | |
The yield curve shows at any point in time |
| | A) | the relationship between yield on a bond and the time to maturity on the bond. |
| | B) | the relationship between the coupon rate on a bond and time to maturity of the bond. |
| | C) | the relationship between the yield on a bond and the duration of the bond. |
| | D) | all of the above |
| | E) | none of the above |
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2 | |
According to the expectations hypothesis, a normal yield curve implies that |
| | A) | interest rates are expected to remain stable in the future. |
| | B) | interest rates are expected to decline in the future. |
| | C) | interest rates are expected to increase first, then decrease. |
| | D) | interest rates are expected to decline first, then increase. |
| | E) | interest rates are expected to increase in the future. |
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3 | |
The expectations theory of the term structure of interest rates states that |
| | A) | yields on long- and short-maturity bonds are determined by the supply and demand for the securities. |
| | B) | forward rates exceed the expected future interest rates. |
| | C) | forward rates are determined by investors' expectations of future interest rates. |
| | D) | all of the above |
| | E) | none of the above |
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4 | |
The market segmentation theory of the term structure of interest rates |
| | A) | theoretically can explain all shapes of yield curves. |
| | B) | assumes that markets for different maturities are separate markets. |
| | C) | definitely holds in the "real world". |
| | D) | A and B. |
| | E) | A and C. |
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5 | |
When computing yield to maturity, the implicit reinvestment assumption is that the interest payments are reinvested at the |
| | A) | coupon rate. |
| | B) | yield to maturity at the time of the investment. |
| | C) | current yield. |
| | D) | prevailing yield to maturity at the time interest payments are received. |
| | E) | the average yield to maturity throughout the investment period. |
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6 | |
The concepts of spot and forward rates are most closely associated with which one of the following explanations of the term structure of interest rates? |
| | A) | Expectations Hypothesis |
| | B) | Segmented Market theory |
| | C) | Preferred Habitat Hypothesis |
| | D) | Liquidity Premium theory |
| | E) | None of the above are true. |
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7 | |
The pure yield curve can be estimated |
| | A) | by using corporate bonds with different risk ratings. |
| | B) | by using zero-coupon bonds. |
| | C) | by using coupon bonds if each coupon is treated as a separate "zero." |
| | D) | by estimating liquidity premiums for different maturities. |
| | E) | B and C. |
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8 | |
An inverted yield curve is one |
| | A) | constructed by using convertible bonds. |
| | B) | with a hump in the middle. |
| | C) | that slopes downward. |
| | D) | that plots the inverse relationship between bond prices and bond yields. |
| | E) | that is relatively flat. |
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9 | |
Investors can use publicly available financial date to determine which of the following?
I. future short-term rates
II. the direction the Dow indexes are heading
III. the shape of the yield curve
IV. the actions to be taken by the Federal Reserve |
| | A) | I and II |
| | B) | I and III |
| | C) | I, II, and III |
| | D) | I, III, and IV |
| | E) | I, II, III, and IV |
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10 | |
The most recently issued Treasury securities are called |
| | A) | on the run. |
| | B) | off the run. |
| | C) | on the market. |
| | D) | off the market. |
| | E) | none of the above |
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