Reference no: EM132040358
1. Which of the following factors could explain difference in yields on bonds with the same time to maturity?
A. default risk
B. interest rate risk
C. credit risk
D. all of the above
2. A change in the relative return of a bond affects the bond's risk premium.
True
False
3. Which of the following would affect the supply of bonds?
A. expected inflation
B. profit opportunities for firms
C. government budget deficits
D. all of the above
4. An increase in the price of gold would have an ambiguous effect on the risk premium of corporate bonds.
True
False
5. An AAA bond has lower default risk than a BBB bond.
True
False
6. Interest rates have generally trended downward since the end of WWII.
True
False
7. An economic expansion can lead to higher equilibrium bond yields if the supply of bonds shifts more than the demand for bonds.
True
False
8. A shift in the demand for bonds changes the interest rate but the converse is not true.
True
False
9. The supply of bonds shifts to the right with an increase in expected inflation, since inflation reduces burden of borrowing.
True
False
10. Ceteris paribus, an increase in the government budget deficit will cause the risk premia on corporate bonds to
A. increase.
B. decrease.
C. stay the same.
D. cannot be determined.
11. Blue chip bonds tend to have
A. higher yields.
B. higher risk premia.
C. both of the above.
D. neither of the above.
12. A recession can lead to a fall in equilibrium bond yields if the demand for bonds shifts more than the supply of bonds.
True
False
13. Interest rate risk is measured by the
A. term premium.
B. risk premium.
C. rate of inflation.
D. none of the above.
14. Which of the following factors could explain difference in yields on bonds with the same time to maturity?
A. the risk that the issuer will not make future payments
B. differences in the taxation of the bonds
C. ease of finding buyers and sellers of a bond
D. all of the above
15. An economic expansion can lead to higher equilibrium bond yields.
True
False
16. An increase in expected inflation increases the risk premium of corporate bonds.
True
False
17. A CCC bond has higher interest rate risk than a BBB bond.
True
False
18. A change in the profit opportunities of a company affects the risk premium of that company's bonds.
True
False
19. Which of the following shifts the demand for bonds to the right?
A. an increase in the price level
B. a decrease in GDP
C. an increase in the interest rate
D. none of the above
20. Microsoft issues bonds to invest in improving its search engine. This change will shift _____ Microsoft bonds and _____ the risk premium.
A. demand for; increase
B. demand for; decrease
C. supply of; increase
D. supply of; decrease