money and bank test bank chap06.docx
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moneyandbanktestbankchap06
TheEconomicsofMoney,Banking,andFinancialMarkets,9e(Mishkin)
Chapter6TheRiskandTermStructureofInterestRates
6.1RiskStructureofInterestRates
1)Theriskstructureofinterestratesis
A)thestructureofhowinterestratesmoveovertime.
B)therelationshipamonginterestratesofdifferentbondswiththesamematurity.
C)therelationshipamongthetermtomaturityofdifferentbonds.
D)therelationshipamonginterestratesonbondswithdifferentmaturities.
Answer:
B
QuesStatus:
PreviousEdition
2)Theriskthatinterestpaymentswillnotbemade,orthatthefacevalueofabondisnotrepaidwhenabondmaturesis
A)interestraterisk.
B)inflationrisk.
C)moralhazard.
D)defaultrisk.
Answer:
D
QuesStatus:
PreviousEdition
3)Bondswithnodefaultriskarecalled
A)flowerbonds.
B)no-riskbonds.
C)default-freebonds.
D)zero-riskbonds.
Answer:
C
QuesStatus:
PreviousEdition
4)Whichofthefollowingbondsareconsideredtobedefault-riskfree?
A)Municipalbonds
B)Investment-gradebonds
C)U.S.Treasurybonds
D)Junkbonds
Answer:
C
QuesStatus:
PreviousEdition
5)U.S.governmentbondshavenodefaultriskbecause
A)theyarebackedbythefullfaithandcreditofthefederalgovernment.
B)thefederalgovernmentcanincreasetaxestopayitsobligations.
C)theyarebackedwithgoldreserves.
D)theycanbeexchangedforsilveratanytime.
Answer:
B
QuesStatus:
PreviousEdition
6)Thespreadbetweentheinterestratesonbondswithdefaultriskanddefault-freebondsiscalledthe
A)riskpremium.
B)junkmargin.
C)bondmargin.
D)defaultpremium.
Answer:
A
QuesStatus:
PreviousEdition
7)Iftheprobabilityofabonddefaultincreasesbecausecorporationsbegintosufferlargelosses,thenthedefaultriskoncorporatebondswill________andtheexpectedreturnonthesebondswill________,everythingelseheldconstant.
A)decrease;increase
B)decrease;decrease
C)increase;increase
D)increase;decrease
Answer:
D
QuesStatus:
PreviousEdition
8)Abondwithdefaultriskwillalwayshavea________riskpremiumandanincreaseinitsdefaultriskwill________theriskpremium.
A)positive;raise
B)positive;lower
C)negative;raise
D)negative;lower
Answer:
A
QuesStatus:
PreviousEdition
9)Ifacorporationbeginstosufferlargelosses,thenthedefaultriskonthecorporatebondwill
A)increaseandthebond'sreturnwillbecomemoreuncertain,meaningtheexpectedreturnonthecorporatebondwillfall.
B)increaseandthebond'sreturnwillbecomelessuncertain,meaningtheexpectedreturnonthecorporatebondwillfall.
C)decreaseandthebond'sreturnwillbecomelessuncertain,meaningtheexpectedreturnonthecorporatebondwillfall.
D)decreaseandthebond'sreturnwillbecomelessuncertain,meaningtheexpectedreturnonthecorporatebondwillrise.
Answer:
A
QuesStatus:
PreviousEdition
10)Ifthepossibilityofadefaultincreasesbecausecorporationsbegintosufferlosses,thenthedefaultriskoncorporatebondswill________,andthebonds'returnswillbecome________uncertain,meaningthattheexpectedreturnonthesebondswilldecrease,everythingelseheldconstant.
A)increase;less
B)increase;more
C)decrease;less
D)decrease;more
Answer:
B
QuesStatus:
PreviousEdition
11)Otherthingsbeingequal,anincreaseinthedefaultriskofcorporatebondsshiftsthedemandcurveforcorporatebondstothe________andthedemandcurveforTreasurybondstothe________.
A)right;right
B)right;left
C)left;right
D)left;left
Answer:
C
QuesStatus:
PreviousEdition
12)Anincreaseintheriskinessofcorporatebondswill________thepriceofcorporatebondsand________thepriceofTreasurybonds,everythingelseheldconstant.
A)increase;increase
B)reduce;reduce
C)reduce;increase
D)increase;reduce
Answer:
C
QuesStatus:
PreviousEdition
13)Anincreaseintheriskinessofcorporatebondswill________theyieldoncorporatebondsand________theyieldonTreasurysecurities,everythingelseheldconstant.
A)increase;increase
B)reduce;reduce
C)increase;reduce
D)reduce;increase
Answer:
C
QuesStatus:
PreviousEdition
14)Anincreaseindefaultriskoncorporatebonds________thedemandforthesebonds,but________thedemandfordefault-freebonds,everythingelseheldconstant.
A)increases;lowers
B)lowers;increases
C)doesnotchange;greatlyincreases
D)moderatelylowers;doesnotchange
Answer:
B
QuesStatus:
PreviousEdition
15)Asdefaultriskincreases,theexpectedreturnoncorporatebonds________,andthereturnbecomes________uncertain,everythingelseheldconstant.
A)increases;less
B)increases;more
C)decreases;less
D)decreases;more
Answer:
D
QuesStatus:
PreviousEdition
16)Astheirrelativeriskiness________,theexpectedreturnoncorporatebonds________relativetotheexpectedreturnondefault-freebonds,everythingelseheldconstant.
A)increases;increases
B)increases;decreases
C)decreases;decreases
D)decreases;doesnotchange
Answer:
B
QuesStatus:
PreviousEdition
17)Whichofthefollowingstatementsaretrue?
A)Adecreaseindefaultriskoncorporatebondslowersthedemandforthesebonds,butincreasesthedemandfordefault-freebonds.
B)Theexpectedreturnoncorporatebondsdecreasesasdefaultriskincreases.
C)Acorporatebond'sreturnbecomeslessuncertainasdefaultriskincreases.
D)Astheirrelativeriskinessincreases,theexpectedreturnoncorporatebondsincreasesrelativetotheexpectedreturnondefault-freebonds.
Answer:
B
QuesStatus:
PreviousEdition
18)Everythingelseheldconstant,ifthefederalgovernmentweretoguaranteetodaythatitwillpaycreditorsifacorporationgoesbankruptinthefuture,theinterestrateoncorporatebondswill________andtheinterestrateonTreasurysecuritieswill________.
A)increase;increase
B)increase;decrease
C)decrease;increase
D)decrease;decrease
Answer:
C
QuesStatus:
PreviousEdition
19)Bondswithrelativelyhighriskofdefaultarecalled
A)Bradybonds.
B)junkbonds.
C)zerocouponbonds.
D)investmentgradebonds.
Answer:
B
QuesStatus:
PreviousEdition
20)Bondswithrelativelylowriskofdefaultarecalled________securitiesandhavearatingofBaa(orBBB)andabove;bondswithratingsbelowBaa(orBBB)haveahigherdefaultriskandarecalled________.
A)investmentgrade;lowergrade
B)investmentgrade;junkbonds
C)highquality;lowergrade
D)highquality;junkbonds
Answer:
B
QuesStatus:
PreviousEdition
21)Whichofthefollowingbondswouldhavethehighestdefaultrisk?
A)Municipalbonds
B)Investment-gradebonds
C)U.S.Treasurybonds
D)Junkbonds
Answer:
D
QuesStatus:
PreviousEdition
22)Whichofthefollowinglong-termbondshasthehighestinterestrate?
A)CorporateBaabonds
B)U.S.Treasurybonds
C)CorporateAaabonds
D)Municipalbonds
Answer:
A
QuesStatus:
PreviousEdition
23)Whichofthefollowingsecuritieshasthelowestinterestrate?
A)Junkbonds
B)U.S.Treasurybonds
C)Investment-gradebonds
D)CorporateBaabonds
Answer:
B
QuesStatus:
New
24)ThespreadbetweeninterestratesonlowqualitycorporatebondsandU.S.governmentbonds
A)widenedsignificantlyduringtheGreatDepression.
B)narrowedsignificantlyduringtheGreatDepression.
C)narrowedmoderatelyduringtheGreatDepression.
D)didnotchangeduringtheGreatDepression.
Answer:
A
QuesStatus:
PreviousEdition
25)DuringtheGreatDepressionyears1930-1933therewasaveryhighrateofbusinessfailuresanddefaults,wewouldexpecttheriskpremiumfor________bondstobeveryhigh.
A)U.S.Treasury
B)corporateAaa
C)municipal
D)corporateBaa
Answer:
D
QuesStatus:
PreviousEdition
26)Riskpremiumsoncorporatebondstendto________duringbusinesscycleexpansionsand________duringrecessions,everythingelseheldconstant.
A)increase;increase
B)increase;decrease
C)decrease;increase
D)decrease;decrease
Answer:
C
QuesStatus:
PreviousEdition
27)Thecollapseofthesubprimemortgagemarket
A)didnotaffectthecorporatebondmarket.
B)increasedtheperceivedriskinessofTreasurysecurities.
C)reducedtheBaa-Aaaspread.
D)increasedtheBaa-Aaaspread.
Answer:
D
QuesStatus:
Revised
28)ThecollapseofthesubprimemortgagemarketincreasedthespreadbetweenBaaanddefault-freeU.S.Treasurybonds.Thisisdueto
A)areductioninrisk.
B)areductioninmaturity.
C)aflighttoquality.
D)aflighttoliquidity.
Answer:
C
QuesStatus:
Revised
29)Duringa"flighttoquality"
A)thespreadbetweenTreasurybondsandBaabondsincreases.
B)thespreadbetweenTreasurybondsandBaabondsdecreases.
C)thespreadbetweenTreasurybondsandBaabondsisnotaffected.
D)thechangeinthespreadbetweenTreasurybondsandBaabondscannotbepredicted.
Answer:
A
QuesStatus:
Revised
30)Ifyouhaveaverylowtoleranceforrisk,whichofthefollowingbondswouldyoubeleastlikelytoholdinyourportfolio?
A)aU.S.Treasurybond
B)amunicipalbond
C)acorporatebondwitharatingofAaa
D)acorporatebondwitharatingofBaa
Answer:
D
QuesStatus:
PreviousEdition
31)Whichofthefollowingstatementsaretrue?
A)Aliquidassetisonethatcanbequicklyandcheaplyconvertedintocash.
B)Thedemandforabonddeclineswhenitbecomeslessliquid,decreasingtheinterestratespreadbetweenitandrelativelymoreliquidbonds.
C)Thedifferencesinbondinterestratesreflectdifferencesindefaultriskonly.
D)Thecorporatebondmarketisthemostliquidbondmarket.
Answer:
A
QuesStatus:
PreviousEdition
32)Corporatebondsarenotasliquidasgovernmentbondsbec
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