Answer true level of difficulty 2 learning goal 1

Answer: TRUE
Level of Difficulty: 2
Learning Goal: 1
Topic: Risk Free Rate of Interest
70. The market segmentation theory suggests that the shape of the yield curve is determined by the
supply and demand for loans within each maturity segment.
Level of Difficulty: 2
Learning Goal: 1
Topic: Term Structure Theories
71. The liquidity preference theory suggests that the shape of the yield curve is determined by the
supply and demand for loans within each maturity segment.
Level of Difficulty: 2
Learning Goal: 1
Topic: Term Structure Theories
72. The liquidity preference theory suggests that short-term rates should be lower than long-term rates.
Level of Difficulty: 2
Learning Goal: 1
Topic: Term Structure Theories
73. The expectations theory suggests that the shape of the yield curve reflects investors expectations
about future inflation rates.
Level of Difficulty: 2
Learning Goal: 1
Topic: Term Structure Theories

Chapter 6 Interest Rates and Bond Valuation 263
74. The reason for a difference in the yield between a Aaa corporate bond and an otherwise identical
Baa bond is the risk premium; the real interest rate and the inflation rate is the same for both.
Level of Difficulty: 2
Learning Goal: 1
Topic: Risk Premiums
75. According to Moodys, a bond rated A should provide investors with a higher yield than an otherwise
identical bond rated Aa.
Level of Difficulty: 2
Learning Goal: 1
Topic: Risk Premiums
76. The possibility that the issuer of a bond will not pay the contractual interest or principal payments as
scheduled is called maturity risk.
Level of Difficulty: 2
Learning Goal: 1
Topic: Risk Premiums
77. The possibility that the issuer of a bond will not pay the contractual interest or principal payments as
scheduled is called default risk.
Level of Difficulty: 2
Learning Goal: 1
Topic: Risk Premiums
78. Restrictive covenants, which are also known as standard debt provisions, place operating and
financial constraints on the borrower.
Level of Difficulty: 2
Learning Goal: 2
Topic: Bond Provisions
79. In a bond indenture, the term security interest refers to the fact that most firms that issue bonds are
required to establish sinking fund provisions to protect bondholders.
Level of Difficulty: 2
Learning Goal: 2
Topic: Bond Indenture
80. In a bond indenture, the term security interest refers to collateral pledged against the bond.
Level of Difficulty: 2
Learning Goal: 2
Topic: Bond Indenture

264 Gitman • Principles of Finance, Eleventh Edition
81. The length of the maturity on a bond offering affects its cost. In general, the longer the maturity, the
higher the cost.
Level of Difficulty: 2
Learning Goal: 2
Topic: Cost of Bonds
82. The length of the maturity on a bond offering affects its cost. In general, the longer the maturity, the
lower the cost.