Question 33 of 50

Which of the four fundamental factors affecting the cost of money relates to the investment opportunities in productive (cash generating) assets?

In a hypothetical scenario where the real risk-free rate of interest (r*) is 1.7 percent and the expected inflation rate is 1.5 percent, what would be the quoted rate of interest on a 1-year T-bill?

What is the term for the premium that reflects the possibility that an issuer will not make scheduled interest or principal payments at the stated time?

A graph showing the relationship between bond yields and maturities for bonds of a given risk class is known as what?

What shape of yield curve is generally referred to as a 'normal' yield curve?

According to the pure expectations theory, if the yield on a 1-year Treasury security is 5.0 percent and the yield on a 2-year Treasury security is 5.5 percent, what is the market's forecast for the 1-year rate one year from now?

Which macroeconomic factor has a significant effect on economic activity, inflation, and interest rates and is controlled by the Federal Reserve Board in the United States?

What is the primary risk that holders of long-term bonds are exposed to, even if they are U.S. Treasury bonds with no default risk?

If a 1-year Treasury bond yields 5.0 percent and a 2-year Treasury bond yields 5.5 percent, and the maturity risk premium on the 2-year bond is 0.20 percent, what is the expected return on a series of two 1-year bonds?

What is the risk that a decline in interest rates will lead to lower income when bonds mature and the funds are reinvested?

A 4-year Treasury security has a yield of 7.28 percent. Given a real risk-free rate of 2.50 percent and a maturity risk premium of 0.18 percent, what is the inflation premium (IP) for this bond?

If a country runs a foreign trade deficit, what is the general impact on its need to borrow from other nations and on its domestic interest rates?

During economic recessions, what is the general tendency for short-term interest rates?

What does a positive maturity risk premium (MRP) imply about how investors, on average, view the relative risk of long-term versus short-term bonds?

If the yield spread between a corporate bond and a Treasury bond of the same maturity widens, what does this typically imply about the perceived risk of the corporate bond?

A corporate bond's yield is 6.55 percent. If the yield on a Treasury bond with the same maturity is 5.7 percent, and the corporate bond's liquidity premium (LP) is 0.25 percent, what is its default risk premium (DRP)?

Which of the following is NOT a primary component included in the calculation of a quoted interest rate on a corporate debt security?

If a firm uses short-term debt to finance a long-term project, what is the primary risk it faces?

The real risk-free rate of interest, r*, is primarily determined by which two factors?

If the real risk-free rate is 3 percent, the inflation premium is 2 percent for the next 3 years, and the maturity risk premium is calculated as 0.1 x (t - 1) percent, where t is the bond's maturity, what is the yield on a 3-year Treasury bond?

What is the relationship between the 'cross-term' in the more precise formula for the nominal risk-free rate and the level of interest rates and inflation?

An 8-year BBB-rated corporate bond has a yield of 7.3 percent. If an 8-year Treasury bond yields 5.8 percent and the liquidity premium on the corporate bond is 0.5 percent, what is the implied default risk premium?

Which type of risk are holders of short-term bonds, such as retirees living on investment income, most heavily exposed to?

If interest rates on 1-year, 5-year, and 10-year Treasury bonds are 4 percent, 4.5 percent, and 5 percent respectively, what is the shape of the yield curve?

If a corporate treasurer is deciding whether to finance a 30-year plant by issuing long-term or short-term debt and the current yield curve is upward sloping, what is the primary trade-off?

If the average expected inflation rate over the next 4 years is 3.5 percent, the real risk-free rate is 2.5 percent, and the maturity risk premium for a 4-year bond is 0.18 percent, what is the approximate yield on a 4-year Treasury bond?

Which of the following premiums is generally assumed to be zero for U.S. Treasury securities?

If a yield curve is 'humped', what does this signify about interest rates for different maturities?

If the Federal Reserve Board increases the money supply to stimulate the economy, what is the initial effect on short-term interest rates?

What does the pure expectations theory of the term structure of interest rates assume about the maturity risk premium (MRP)?

If the yield on a 1-year Treasury security is 6 percent and the yield on a 2-year Treasury security is 6.2 percent, and assuming the pure expectations theory holds, what is the expected 1-year rate one year from now?

What is the premium added to the equilibrium interest rate on a security if that security cannot be converted to cash on short notice at a 'fair market value'?

If the real risk-free rate is 2.05 percent, inflation is expected to be 3.05 percent this year, and the maturity risk premium is 0, what is the yield on a 1-year Treasury note?

Which of the following events would most likely cause the yield curve for corporate bonds to shift upward, while the Treasury yield curve remains unchanged?

If a company's 5-year bonds are yielding 7 percent per year and Treasury bonds with the same maturity are yielding 5.2 percent per year, what is the yield spread?

What is the interest rate on a security that is free of all risk, proxied by the T-bill rate or the T-bond rate, and includes an inflation premium?

If a saver invests in a series of short-term T-bills over a long period, which risk is more pronounced compared to investing in a single long-term T-bond?

If the real risk-free rate of interest is 3 percent and is expected to remain constant, while inflation is expected to be 2 percent for the next 3 years, and the maturity risk premium is zero, what is the yield on a 2-year Treasury security?

What is the primary reason that a 30-year Treasury bond has a higher yield than a 1-year Treasury bill, assuming a normal, upward-sloping yield curve?

If the United States is running a large foreign trade deficit, what is the likely impact on its dependency on interest rates in other parts of the world?

What does the term 'flight to quality' refer to in the context of interest rate determination?

Consider a 3-year Treasury security with a yield of 6.3 percent and a 1-year Treasury security with a yield of 6.0 percent. Assuming the pure expectations theory holds, what is the expected yield on a 2-year security one year from now?

If a saver chose to invest in a long-term bond fund instead of a short-term bond fund, what would be the primary effect on their annual interest income, assuming a normal, upward-sloping yield curve?

The yield on a 4-year Treasury bond is 5.2 percent. The real risk-free rate is 2.25 percent and inflation is expected to average 2.75 percent over the next 4 years. What is the maturity risk premium (MRP) for the 4-year security?

If a company uses long-term debt to finance a long-term project, what is the primary risk it avoids compared to using short-term debt?

The yield on a 1-year Treasury bond is 5.5 percent, and it is 6.0 percent on a 2-year Treasury bond. If the maturity risk premium is 0 for the 1-year bond and 0.2 percent for the 2-year bond, what is the expected interest rate on a 1-year bond one year from today?

What is the primary driver of the yield spread between a high-yield (junk) corporate bond and a high-quality (AAA) corporate bond of the same maturity?

If investors become more risk-averse, what is the likely impact on the market risk premium (RPM) and the slope of the Security Market Line (SML)?

What is the precise formula for the nominal risk-free rate (rRF) that accounts for the compounding effect between the real rate (r*) and inflation (IP)?