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Finance Lesson 3

Terms in this set (21)

Moody's and Standard and Poor's are agencies that ________.
Produce information about the probability of default on corporate bonds.
When the default risk on corporate bonds decreases, other things equal, the demand for corporate bonds ________ and the demand for Treasury bonds ________.
increases; decreases
Which of the following long-term bonds should have the highest interest rate?
Corporate Baa bonds
As a result of the Enron collapse and bankruptcy, the demand for lower quality corporate bonds ________, the demand for higher quality corporate bonds ________, and the risk spread ________.
decreased; increased; increased
If income tax rates were lowered, then ________
the interest rate on municipal bonds would rise.
________ bonds are the most liquid of all long-term bonds.
U.S. Treasury
When yield curves are steeply upward-sloping, ________
long-term interest rates are above short-term interest rates.
When budget talks between congressional Republicans and President Clinton occurred in late 1995, fear of a government default ________, Treasury bond values ________, and interest rates on Treasury bonds ________.
rose; fell; rose
The term structure of interest rates is ________
the relationship among interest rates on bonds with different maturities.
If Moody's or Standard and Poor's downgrades its rating on a corporate bond, the demand for the bond ________ and its yield ________.
decreases; increases
A steep upward sloping yield curve indicates that short-term interest rates are expected to ________
rise moderately in the near future.
Holding everything else constant, if a corporation begins to suffer large losses, then the default risk on its bonds will ________ and the expected return on those bonds will ________.
increase; decrease
In actual practice, short-term interest rates are just as likely to fall as to rise; this is the major shortcoming of the ________
expectations theory.
The risk structure of interest rates is explained by ________
all of the above
The ________ theory is the most widely accepted theory of the term structure of interest rates because it explains the major empirical facts about the term structure so well.
liquidity premium
According to the market segmentation theory of the term structure, ________
all of the above
Typically, yield curves are ________
gently upward-sloping.
Bonds with relatively high risk of default are called ________
junk bonds
A bond rating of Aa or AA would mean that the quality of the bond is ________
high
Which of the following long-term bonds should have the lowest interest rate?
Municipal bonds
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.
increasing; decreasing
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