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# Quiz Chapter 6 Answer Key - CHAPTER 6 INTEREST RATES Name...

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Name____________________________________ Real risk-free rate, r* 1 . Suppose 1-year T-bills currently yield 5.00% and the future inflation rate is expected to be constant at 3.10% per year. What is the real risk-free rate of return, r*? a. 1.90% b. 2.00% c. 2.10% d. 2.20% Default risk premium 2 . If 10-year T-bonds have a yield of 5.2%, 10-year corporate bonds yield 7.5%, the maturity risk premium on all 10-year bonds is 1.1%, and corporate bonds have a 0.2% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond? a. 2.00% b. 2.10% c. 2.20% d. 2.30% Yield curve 3 . Which of the following statements is CORRECT? a. Downward sloping yield curves are inconsistent with the expectations theory. b. The shape of the yield curve depends only on expectations about future inflation. c. If the pure expectations theory is correct, a downward sloping yield curve indicates that interest rates are expected to decline in the future. d. If the yield curve is upward sloping, the inflation rate must be expected to increase.

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Quiz Chapter 6 Answer Key - CHAPTER 6 INTEREST RATES Name...

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