Unformatted text preview: Nan--. ‘ ..—.. m. _ , Q/Attendance problem set4 1. If the liquidity effect is smaller than the other effects, and the adjustment to expected inﬂation
is immediate, then the A) interest rate will fall. B) interest rate will rise.
C) interest rate will fall immediately below the initial level when the money supply rwgrows.
GDIinterest rate will rise immediately above the initial level when the money supply grows. 2. The risk that interest payments will not be made, or that the face value of a bond is not repaid when a bond matures is A) interest rate risk.
B) inﬂation risk. C moral hazard.
D) efault risk. 3. If the probability of a bond default increases because corporations begin to suffer large losses,
then the default risk on corporate bonds will and the expected return on these bonds will , everything else held constant. A) decrease; increase
.3) decrease; decrease
C) increase; increase @crease; decrease 4. Everything else held constant, an increase in marginal tax rates would likely have the effect of
the demand for municipal bonds, and the demand for U.S. government bonds. A) increasing; increasing
@increasing; decreasing C) decreasing; increasing D) decreasing; decreasing 5. According to the expectations theory of the term structure A) when the yield curve is steeply upward sloping, short-term interest rates are expected to remain relatively stable in the future.
B) when the yield curve is downward sloping, short—term interest rates are expected to remain relatively stable in the future.
C) investors have strong preferences for short-term relative to long-term bonds, explain'ng why yield curves typically slope upward.
épyield curves should be equally likely to slope downward as slope upward. ...
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- Fall '09