money-and-bank-test-bank-chap06

1TheEconomicsofMoney,Banking,andFinancialMarkets,9e(Mishkin)Chapter6TheRiskandTermStructureofInterestRates6.1RiskStructureofInterestRates1)TheriskstructureofinterestratesisA)thestructureofhowinterestratesmoveovertime.B)therelationshipamonginterestratesofdifferentbondswiththesamematurity.C)therelationshipamongthetermtomaturityofdifferentbonds.D)therelationshipamonginterestratesonbondswithdifferentmaturities.Answer:BQuesStatus:PreviousEdition2)Theriskthatinterestpaymentswillnotbemade,orthatthefacevalueofabondisnotrepaidwhenabondmaturesisA)interestraterisk.B)inflationrisk.C)moralhazard.D)defaultrisk.Answer:DQuesStatus:PreviousEdition3)BondswithnodefaultriskarecalledA)flowerbonds.B)no-riskbonds.C)default-freebonds.D)zero-riskbonds.Answer:CQuesStatus:PreviousEdition4)Whichofthefollowingbondsareconsideredtobedefault-riskfree?A)MunicipalbondsB)Investment-gradebondsC)U.S.TreasurybondsD)JunkbondsAnswer:CQuesStatus:PreviousEdition5)U.S.governmentbondshavenodefaultriskbecauseA)theyarebackedbythefullfaithandcreditofthefederalgovernment.B)thefederalgovernmentcanincreasetaxestopayitsobligations.C)theyarebackedwithgoldreserves.D)theycanbeexchangedforsilveratanytime.Answer:BQuesStatus:PreviousEdition26)Thespreadbetweentheinterestratesonbondswithdefaultriskanddefault-freebondsiscalledtheA)riskpremium.B)junkmargin.C)bondmargin.D)defaultpremium.Answer:AQuesStatus:PreviousEdition7)Iftheprobabilityofabonddefaultincreasesbecausecorporationsbegintosufferlargelosses,thenthedefaultriskoncorporatebondswill________andtheexpectedreturnonthesebondswill________,everythingelseheldconstant.A)decrease;increaseB)decrease;decreaseC)increase;increaseD)increase;decreaseAnswer:DQuesStatus:PreviousEdition8)Abondwithdefaultriskwillalwayshavea________riskpremiumandanincreaseinitsdefaultriskwill________theriskpremium.A)positive;raiseB)positive;lowerC)negative;raiseD)negative;lowerAnswer:AQuesStatus:PreviousEdition9)Ifacorporationbeginstosufferlargelosses,thenthedefaultriskonthecorporatebondwillA)increaseandthebond'sreturnwillbecomemoreuncertain,meaningtheexpectedreturnonthecorporatebondwillfall.B)increaseandthebond'sreturnwillbecomelessuncertain,meaningtheexpectedreturnonthecorporatebondwillfall.C)decreaseandthebond'sreturnwillbecomelessuncertain,meaningtheexpectedreturnonthecorporatebondwillfall.D)decreaseandthebond'sreturnwillbecomelessuncertain,meaningtheexpectedreturnonthecorporatebondwillrise.Answer:AQuesStatus:PreviousEdition310)Ifthepossibilityofadefaultincreasesbecausecorporationsbegintosufferlosses,thenthedefaultriskoncorporatebondswill________,andthebonds'returnswillbecome________uncertain,meaningthattheexpectedreturnonthesebondswilldecrease,everythingelseheldconstant.A)increase;lessB)increase;moreC)decrease;lessD)decrease;moreAnswer:BQuesStatus:PreviousEdition11)Otherthingsbeingequal,anincreaseinthedefaultriskofcorporatebondsshiftsthedemandcurveforcorporatebondstothe________andthedemandcurveforTreasurybondstothe________.A)right;rightB)right;leftC)left;rightD)left;leftAnswer:CQuesStatus:PreviousEdition12)Anincreaseintheriskinessofcorporatebondswill________thepriceofcorporatebondsand________thepriceofTreasurybonds,everythingelseheldconstant.A)increase;increaseB)reduce;reduceC)reduce;increaseD)increase;reduceAnswer:CQuesStatus:PreviousEdition13)Anincreaseintheriskinessofcorporatebondswill________theyieldoncorporatebondsand________theyieldonTreasurysecurities,everythingelseheldconstant.A)increase;increaseB)reduce;reduceC)increase;reduceD)reduce;increaseAnswer:CQuesStatus:PreviousEdition14)Anincreaseindefaultriskoncorporatebonds________thedemandforthesebonds,but________thedemandfordefault-freebonds,everythingelseheldconstant.A)increases;lowersB)lowers;increasesC)doesnotchange;greatlyincreasesD)moderatelylowers;doesnotchangeAnswer:BQuesStatus:PreviousEdition415)Asdefaultriskincreases,theexpectedreturnoncorporatebonds________,andthereturnbecomes________uncertain,everythingelseheldconstant.A)increases;lessB)increases;moreC)decreases;lessD)decreases;moreAnswer:DQuesStatus:PreviousEdition16)Astheirrelativeriskiness________,theexpectedreturnoncorporatebonds________relativetotheexpectedreturnondefault-freebonds,everythingelseheldconstant.A)increases;increasesB)increases;decreasesC)decreases;decreasesD)decreases;doesnotchangeAnswer:BQuesStatus:PreviousEdition17)Whichofthefollowingstatementsaretrue?A)Adecreaseindefaultriskoncorporatebondslowersthedemandforthesebonds,butincreasesthedemandfordefault-freebonds.B)Theexpectedreturnoncorporatebondsdecreasesasdefaultriskincreases.C)Acorporatebond'sreturnbecomeslessuncertainasdefaultriskincreases.D)Astheirrelativeriskinessincreases,theexpectedreturnoncorporatebondsincreasesrelativetotheexpectedreturnondefault-freebonds.Answer:BQuesStatus:PreviousEdition18)Everythingelseheldconstant,ifthefederalgovernmentweretoguaranteetodaythatitwillpaycreditorsifacorporationgoesbankruptinthefuture,theinterestrateoncorporatebondswill________andtheinterestrateonTreasurysecuritieswill________.A)increase;increaseB)increase;decre