Chapter 15
The Term Structure of Interest Rates
Multiple Choice Questions
1.
The term structure of interest rates is:
A)
The relationship between the rates of interest on all securities.
B)
The relationship between the interest rate on a security and its time to maturity.
C)
The relationship between the yield on a bond and its default rate.
D)
All of the above.
E)
None of the above.
Answer: B
Difficulty: Easy
Rationale: The term structure of interest rates is the relationship between two
variables, years and yield to maturity (holding all else constant).
2.
The yield curve shows at any point in time:
3.
An inverted yield curve implies that:
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Chapter 15
The Term Structure of Interest Rates
4.
An upward sloping yield curve is a(n) _______ yield curve.
5.
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 in the future.
D)
interest rates are expected to decline first, then increase.
E)
interest rates are expected to increase first, then decrease.
Answer: C
Difficulty: Easy
Rationale: An upward sloping yield curve is based on the expectation that short-term
interest rates will increase.

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