Which ONE of the following statements is true?

Which ONE of the following statements is true?

A) The longer the maturity of a security, the greater its interest rate risk.
B) If investors believe inflation will be subsiding in the future, the prevailing yield will be upward sloping.
C) The real rate of interest varies with the business cycle, with the lowest rates seen at the end of a period of business expansion and the lowest at the bottom of a recession.
D) The interest risk premium always adds a downward bias to the slope of the yield curve.

Answer: A

The three economic factors that determine the shape of the yield curve are

The three economic factors that determine the shape of the yield curve are

A) the real rate of interest, the expected rate of inflation, and marketability.
B) the real rate of interest, the expected rate of inflation, and interest rate risk.
C) the nominal rate of interest, the expected rate of inflation, and interest rate risk.
D) the real rate of interest, the nominal rate of interest, and interest rate risk.

Answer: B

Which one of the following statements is NOT true?

Which one of the following statements is NOT true?

A) The relationship between yield and marketability is known as the term structure of interest rates.
B) The shape of the yield curve is not constant over time.
C) As the general level of interest rises and falls over time, the yield curve shifts up and down and has different slopes.
D) Yield curves show graphically how market yields vary as term to maturity changes.

Answer: A

Inverted yield curves are observed when

Inverted yield curves are observed when

A) the economy is growing.
B) the economy is stagnant.
C) the economy is in recession.
D) None of the above.




Answer: C

Which one of the following statements is NOT true?

Which one of the following statements is NOT true?

A) The risk that the lender may not receive payments as promised is called default risk.
B) Investors must pay a premium to purchase a security that exposes them to default risk.
C) U.S. Treasury securities do not have any default risk and are the best proxy measure for the risk-free rate.
D) All of the above are true statements.

Answer: B

Which ONE of the following statements is true?

Which ONE of the following statements is true?

A) The lower the transaction costs are, the greater a security's marketability.
B) The interest rate, or yield, on a security varies inversely with its degree of marketability.
C) U.S. Treasury bills have the largest and most active secondary market and are considered to be the most marketable of all securities.
D) All of the above are true.

Answer: D