The market considers the risk of default of U.S. treasury bonds to be close to zero Select one: • True • False

The market considers the risk of default of U.S. treasury bills to be close to zero Select one: O True O False

1. Which of the following bonds would have the highest default risk?A) municipal bondsB) investment-grade bondsC) U.S. Treasury bondsD) junk bonds2. During a "flight to quality"A) the spread between Treasury bonds and Baa bonds increases.B) the spread between Treasury bonds and Baa bonds decreases.C) the spread between Treasury bonds and Baa bonds is not affected.D) the change in the spread between Treasury bonds and Baa bonds cannot be predicted.3. 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 beA) 2 percent.B) 3 percent.C) 4 percent.D) 5 percent.4. Risk premiums on corporate bonds tend to ________ during business cycle expansions and________ during recessions, everything else held constant.A) increase; increaseB) increase; decreaseC) decrease; increaseD) decrease; decrease5. If the expected path of 1-year interest rates over the next four years is 5 percent, 4 percent,2 percent, and 1 percent, then the expectations theory predicts that today's interest rate on thefour-year bond isA) 1 percent.B) 2 percent.C) 3 percent.D) 4 percent.6. An increase in the riskiness of corporate bonds will ________ the yield on corporate bondsand ________ the yield on Treasury securities, everything else held constant.A) increase; increaseB) reduce; reduceC) increase; reduceD) reduce; increase7. When the yield curve is flat or downward-sloping, it suggest that the economy is morelikely to enterA) a recession.B) an expansion.C) a boom time.D) a period of increasing output.8. A ________ yield curve predicts a future increase in inflation.A) steeply upward slopingB) slight upward slopingC) flatD) downward sloping9. The typical shape for a yield curve isA) gently upward sloping.B) mound shaped.C) flat.D) bowl shaped.10. Everything else held constant, the interest rate on municipal bonds rises relative to theinterest rate on Treasury securities whenA) income tax rates are lowered.B) income tax rates are raised.C) municipal bonds become more widely traded.D) corporate bonds become riskier

When an investor looks into corporate bonds, they should never weigh out the possibility that the company may default on the debt.Select one:TrueFalse

Government bonds are not necessarily free from default risk. Which of the following examples were mentioned in the lecture? A. India and Brazil B. Australia and China C. United States and Russia D. None of the above

Inherent risk is the risk that a given bond issue will be paid off earlier than expected, normally through a call provision.Select one:TrueFalse