Chap015 - Multiple Choice Questions 1. The term structure...

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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 2. The yield curve shows at any point in time: A) The relationship between the yield on a bond and the duration of the bond. B) The relationship between the coupon rate on a bond and time to maturity of the bond. C) The relationship between yield on a bond and the time to maturity on the bond. D) All of the above. E) None of the above. Answer: C Difficulty: Easy 3. An inverted yield curve implies that: A) Long-term interest rates are lower than short-term interest rates. B) Long-term interest rates are higher than short-term interest rates. C) Long-term interest rates are the same as short-term interest rates. D) Intermediate term interest rates are higher than either short- or long-term interest rates. E) none of the above. Answer: A Difficulty: Easy 4. An upward sloping yield curve is a(n) _______ yield curve. A) normal. B) humped. C) inverted. D) flat. E) none of the above. Answer: A Difficulty: Easy 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 6. Which of the following is not proposed as an explanation for the term structure of interest rates: A) The expectations theory. B) The liquidity preference theory. C) The market segmentation theory. D) Modern portfolio theory. E) A, B, and C. Answer: D Difficulty: Easy 7. The expectations theory of the term structure of interest rates states that A) forward rates are determined by investors' expectations of future interest rates. B) forward rates exceed the expected future interest rates. C) yields on long- and short-maturity bonds are determined by the supply and demand for the securities. D) all of the above. E) none of the above. Answer: A Difficulty: Easy 8. Which of the following theories state that the shape of the yield curve is essentially determined by the supply and demands for long-and short-maturity bonds? A) Liquidity preference theory. B) Expectations theory. C) Market segmentation theory. D) All of the above.
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E) None of the above. Answer: C Difficulty: Easy 9. If forward rates are known with certainty and all bonds are fairly priced A) all bonds would have the same yield to maturity. B)
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This note was uploaded on 04/03/2011 for the course FIN 202 taught by Professor Sam during the Spring '11 term at University of Texas at Dallas, Richardson.

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Chap015 - Multiple Choice Questions 1. The term structure...

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