QUESTION 1. The term structure of interest rates defines the relation between bond maturity and bond yield to maturity.
True
False

QUESTION 2. A downward sloping yield curve is generally a positive sign of future economic prospects. (Slide 18)
True
False

QUESTION 3. Nominal interest rates tend to increase when the economy expands. (Pg 183 Chart)
True
False

QUESTION 4. A widening of default risk premiums is considered a positive sign for future economic prospects. (Slide 33) (Pg173)
True
False

QUESTION 5. A BB-rated bond would be considered investment grade. (PG 175 BBB or better)

True
False

QUESTION 6. A pension fund would probably prefer a municipal security with a yield of 2.5% to an equivalent corporate bond with a yield of 3%.(Pg 26,179,Class discussion)
True
False

QUESTION 7. A convertible US$ bond could not have a yield greater than a US government bond with the same maturity.
True. Because convertibility is an option for which the premium will be borne by the investor. Hence, the yield =yield on non-corporate bond-convertibility option premium (Chegg)
True
False

QUESTION 8. Add on money market instruments are sold at a discount from par value. True (Slide 73, pg 134)
True
False

QUESTION 9. The yield on overnight repurchase agreements (repos) is generally lower than the corresponding fed funds rate.( Slide 60)
True
False

QUESTION 10. Suppose the yields on one-year government bonds are as follows: spot = .04; 1-year forward = .045; 2-year forward = .06. According to the expectations theory, what is the approximate (spot) yield on a 3-year government bond?

4.80%

4.81%

4.82%

4.83%

4.84%

QUESTION 11. Suppose the yields on government bonds are as follows: 1-year = .02; 2-year = .03; 3-year = .035. According to the expectations theory, what is the implied 2-year forward yield on a 1-year government bond?

3.0%

3.5%

4.0%

4.5%

5.0%

QUESTION 12. The liquidity premium theory implies that the yield curve( Page 185) slide 21

slopes downward

is flat

slopes upward

possibly any of the above

QUESTION 13. The preferred habitat theory implies that the yield curve

slopes downward

is flat

slopes upward

possibly any of the above

QUESTION 14. If an investor has a 25% marginal tax rate, a municipal security with a yield of 3% would be considered equivalent to a corporate bond yield of

2%

3%

4%

5%

QUESTION 15. Which of the following bond options would increase the bond's required yield?
I. callable
II. convertible
III. putable

I only

II only

I and III only

II and III only

all of the above

none of the above

QUESTION 16. The discount yield on a money market instrument _____ its actual yield.

understates

equals

overstates

none of the above

QUESTION 17. Over the past decade, the volume of US commercial paper has

decreased

stayed relatively constant

increased

none of the above

QUESTION 18. If you purchase a 90-day treasury bill at 99.5% of par, what is your approximate discount yield?

1.97%

2.00%

2.03%

2.06%

none of the above

QUESTION 19. If you purchase a 90-day treasury bill at 99.5% of par, what is your approximate bond equivalent yield?

1.97%

2.00%

2.03%

2.06%

none of the above

QUESTION 20 A ______ is a short-term loan secured by a money market instrument.

commercial paper

fed funds

certificate of deposit

repurchase agreement

all of the above

none of the above