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)
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview.
Sign up
to
access the rest of the document.