In this document of ECO 316 Week 2 Chapter 7 Risk Structure and Term Structure of Interest Rates you will find the answers on the next questions:
7.1 Multiple Choice Questions
1) The risk structure of interest rates refers to
2) Default risk arises from the fact that
3) If the average risk premium of corporate bonds increases,
4) Currently, a three-month Treasury bill pays 5% interest and a ten-year Treasury bond pays 4.7% interest. What is the risk premium of the typical A-rated corporate bond that pays 5.5% interest?
5) Currently, a three-year Treasury note pays 4.75%. Assuming that your tax rate is 20%, what is the minimum interest rate that you would you need to earn on a tax-free municipal bond in order to buy it instead?
6) When a company whose ability to repay its obligations in full is uncertain borrows funds
7) Default risk
8) Which of the following is considered a default-risk-free instrument?
9) U.S. Treasury securities
10) The default risk premium is measured
11) The default risk premium is
12) The default risk premium
13) Risk-neutral savers care
14) Savers generally are
15) Because savers are generally risk-averse
16) Savers who are risk-averse
17) Investors often pay professional analysts to gather and monitor information on the creditworthiness of borrowers because
18) Which of the following assigns widely-followed bond ratings?
19) Bond ratings
20) Which of the following is the highest bond rating assigned by Moody's Investors Service?
21) Which of the following is the lowest rating given to an investment-grade bond by Standard and Poor's?
22) Which of the following bond ratings by Moody's Investors Service would NOT be considered to be below investment grade?
23) Which of the following statements about junk (high-risk) bonds is true?
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