HW_4_Questions_Chapter_5[1]

HW_4_Questions_Chapter_5[1] - have a higher default risk...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
HW 4 Chapter 5 Chapter 5 End-of-Chapter Questions Chapter Questions 3-8 Quantitative problems Questions 1-3, 10-11, 15 Multiple Choice 1. The risk premium is the interest rate on treasury bonds minus the interest rate on default-free bonds. the interest rate on treasury bonds minus the interest rate on corporate bonds. the interest rate on municipal bonds minus the interest rate on treasury bonds. the interest rate on corporate bonds minus the interest rate on treasury bonds. 2. An increase in default risk on corporate bonds _____ the demand for these bonds and _____ the demand for default-free bonds. lowers; increases does not change; greatly increases increases; lowers moderately lowers; does not change
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
3. Bonds with relatively low risk of default are called _____ securities and have a rating of Baa (or BBB) and above; bonds with ratings below Baa (or BBB)
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: have a higher default risk and are called _____. investment grade; junk bonds high quality; lower grade high quality; junk bonds investment grade; lower grade 4. Following the Enron collapse the spread between interest rates on (Baa-rated) and (Aaa-rated) corporate bonds did not change. widened significantly. widened slightly. narrowed. 5. According to the pure expectations theory of the term structure, (a) when the yield curve is steeply upward sloping, short-term interest rates are expected to rise in the future. (b) when the yield curve is downward sloping, short-term interest rates are expected to decline in the future. (c) yield curves should be equally likely to slope downward as to slope upward. (d) all of the above. (e) only (a) and (b) of the above....
View Full Document

This note was uploaded on 09/07/2011 for the course FIN 353 taught by Professor Cobus during the Spring '08 term at S.F. State.

Page1 / 2

HW_4_Questions_Chapter_5[1] - have a higher default risk...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online