HW3_Quest

HW3_Quest - Homework 3 MC Questions EC 370 Fall 2008 Name_...

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1 Homework 3 MC Questions EC 370 – Fall 2008 Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A plot of the interest rates on default - free government bonds with different terms to maturity is called 1) _______ A) a risk - structure curve. B) a yield curve. C) a default - free curve. D) an interest - rate curve. 2) When yield curves are steeply upward sloping, 2) _______ A) short - term interest rates are about the same as long - term interest rates. B) medium - term interest rates are above both short - term and long - term interest rates. C) short - term interest rates are above long - term interest rates. D) long - term interest rates are above short - term interest rates. 3) 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 3) _______ A) 4 percent. B) 5 percent. C) 6 percent. D) 7 percent. 4) 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 4) _______ A) 1 percent. B) 2 percent. C) 3 percent. D) 4 percent. 5) 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 5) _______ A) one year. B) two years. C) three years. D) four years. 6) According to the segmented markets theory of the term structure 6) _______ A) bonds of one maturity are close substitutes for bonds of other maturities, therefore, interest rates on bonds of different maturities move together over time. B)
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HW3_Quest - Homework 3 MC Questions EC 370 Fall 2008 Name_...

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