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Quiz 2.pdf-Quiz 2 Question 1 of 10 Score: 0.2 ...
Quiz_2.pdf-Quiz 2 Question 1 of 10 Score: 0.2 (of possible 0.2 points) If the pure expectations theory is correct (that is, the maturity risk premium is zero), which of the following is
Quiz 2.pdf-Quiz 2 Question 1 of 10 ...
Quiz_2.pdf-Quiz 2 Question 1 of 10 Score: 0.2 (of possible 0.2 points) If the pure expectations theory is correct (that is, the maturity risk premium is zero), which of the following is
Page 3
True
False
Answer Key: False
Question 9 of 10 Score: 0.2
(of possible
0.2
points)
The Federal Reserve tends to take actions to increase interest rates when the economy is very strong and to
decrease rates when the economy is weak.
True
False
Answer Key: True
Question 10 of 10 Score: 0.2
(of possible
0.2
points)
Assume the following: The real risk-free rate, r*, is expected to remain constant at 3%. Inflation is expected to be
3% next year and then to be constant at 2% a year thereafter. The maturity risk premium is zero. Given this
information, which of the following statements is CORRECT?
A.
The yield curve for U.S. Treasury securities will be upward sloping.
B.
A 5-year corporate bond must have a lower yield than a 5-year Treasury security.
C.
A 5-year corporate bond must have a lower yield than a 7-year Treasury security.
D.
The real risk-free rate cannot be constant if inflation is not expected to remain constant.
E.
This problem assumed a zero maturity risk premium, but that is probably not valid in the real
world.
Answer Key: E
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