Reference no: EM131682141
1. A one-year discount bond issued by X has a payout of $3,050 and today's price is $2,900. A one-year discount bond issued by Y has a payout of $2,290 and today's price is $2,055. Then the bond issued by X has a ____ yield than the bond issued by Y, and this could be because X has a ____ default risk.
- higher; lower
- lower; lower
- lower; higher
- higher; higher
2. All else equal, a decrease in the liquidity of U.S. Treasury bonds relative to corporate bonds will shift the demand curve for corporate bonds to the ____ and shift the demand curve for U.S. Treasury bonds to the ____ .
left; left A one-year discount bond issued by X has a payout of $3,050 and today's price is $2,900. A one-year discount bond issued by Y has a payout of $2,290 and today's price is $2,055. Then the bond issued by X has a ____ yield than the bond issued by Y, and this could be because X has a ____ default risk.
- higher; lower
- lower; lower
- lower; higher
- higher; higher
3.Suppose that the default risk of corporate bonds increases due to a downturn in the economy. As a result, we would expect the equilibrium price on the corporate bonds to ____ and the yield on the corporate bonds to ____ .
- increase; decrease
- decrease; increase
- increase; increase
- decrease; decrease
4.Analysts predict that short-term interest rates over the next 4 years will be as follows: 3%, 2%, 7%, and 1%, respectively. According to expectations theory, the yield on a discount bond with a three year maturity will be ____ and yield on bond with a four year maturity will be ____.
- 4%; 4.75%
- 3.5%; 4.25%
- 3.5%; 4.5%
- 4%; 3.25%
5.Consider the same short-term interest rates as in problem 4 above. If the yield on a discount bond that matures in 4 years is 4.25%, then according to liquidity premium theory, the premium attached to the 4 year discount bond is