Question :
21) A key assumption in the segmented markets theory that : 1373682
21) A key assumption in the segmented markets theory is that bonds of different maturities
A) are not substitutes at all.
B) are perfect substitutes.
C) are substitutes only if the investor is given a premium incentive.
D) are substitutes but not perfect substitutes.
22) The segmented markets theory can explain
A) why yield curves usually tend to slope upward.
B) why interest rates on bonds of different maturities tend to move together.
C) why yield curves tend to slope upward when short-term interest rates are low and to be inverted when short-term interest rates are high.
D) why yield curves have been used to forecast business cycles.
23) According to the liquidity premium theory of the term structure
A) because buyers of bonds may prefer bonds of one maturity over another, interest rates on bonds of different maturities do not move together over time.
B) the interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds plus a term premium.
C) because of the positive term premium, the yield curve will not be observed to be downward sloping.
D) the interest rate for each maturity bond is determined by supply and demand for that maturity bond.
24) According to the liquidity premium theory of the term structure
A) bonds of different maturities are not substitutes.
B) if yield curves are downward sloping, then short-term interest rates are expected to fall by so much that, even when the positive term premium is added, long-term rates fall below short-term rates.
C) yield curves should never slope downward.
D) interest rates on bonds of different maturities do not move together over time.
25) The additional incentive that the purchaser of a Treasury security requires to buy a long-term security rather than a short-term security is called the
A) risk premium.
B) term premium.
C) tax premium.
D) market premium.
26) If 1-year interest rates for the next three years are expected to be 4, 2, and 3 percent, and the 3-year term premium is 1 percent, than the 3-year bond rate will be
A) 1 percent.
B) 2 percent.
C) 3 percent.
D) 4 percent.
27) If 1-year interest rates for the next five years are expected to be 4, 2, 5, 4, and 5 percent, and the 5-year term premium is 1 percent, than the 5-year bond rate will be
A) 2 percent.
B) 3 percent.
C) 4 percent.
D) 5 percent.
28) According to the liquidity premium theory of the term structure, a steeply upward sloping yield curve indicates that short-term interest rates are expected to
A) rise in the future.
B) remain unchanged in the future.
C) decline moderately in the future.
D) decline sharply in the future.
29) According to the liquidity premium theory of the term structure, a slightly upward sloping yield curve indicates that short-term interest rates are expected to
A) rise in the future.
B) remain unchanged in the future.
C) decline moderately in the future.
D) decline sharply in the future.
30) According to the liquidity premium theory of the term structure, a flat yield curve indicates that short-term interest rates are expected to
A) rise in the future.
B) remain unchanged in the future.
C) decline moderately in the future.
D) decline sharply in the future.
