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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