Which one of the following statements is false concerning the term structure of interest rates? Group of answer choices The real rate of return has minimal, if any, effect on the slope of the term structure of interest rates. The interest rate risk premium increases as the time to maturity increases. Expectations of lower inflation rates in the future tend to lower the slope of the term structure of interest rates. The term structure of interest rates includes both an inflation premium and an interest rate risk premium. As the maturity increases the term structure of interest rates is always an upward sloping curve.

Which one of the following statements is false concerning the term structure of interest rates? Group of answer choices The real rate of return has minimal, if any, effect on the slope of the term structure of interest rates. The interest rate risk premium increases as the time to maturity increases. Expectations of lower inflation rates in the future tend to lower the slope of the term structure of interest rates. The term structure of interest rates includes both an inflation premium and an interest rate risk premium. As the maturity increases the term structure of interest rates is always an upward sloping curve.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 2Q: Short-term interest rates are more volatile than long-term interest rates, so short-term bond prices...

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Which one of the following statements about the term structure of interest rates is true? A) The expectations hypothesis predicts a flat yield curve if anticipated future short-term rates exceed current short-term rates. B) The liquidity premium theory contends that lenders prefer to buy securities at the ghort-term end of the curve. C) The expectations hypothesis contends that the long-term spot rate is equal to the short-term rate. D) The liquidity premium theory indicates that, all else being equal, longer maturity bonds will have lower yields.
Which one of the following statements is correct? Real rates must exceed inflation rates. Real interest rates might be positive, zero, or even negative. Nominal interest rates are not affected by inflation rates. Real interest rates will be positive as long as the inflation rate is positive. The Fisher hypothesis advocates that real interest rates follow inflation rates.
Which one of the following statements is correct? A. Real rates must exceed inflation rates. B. Real interest rates might be positive, zero, or even negative. C. Nominal interest rates are not affected by inflation rates. D. Real interest rates will be positive as long as the inflation rate is positive. E. The Fisher hypothesis advocates that real interest rates follow inflation rates.
Which one of the following statements about the term structure of interest rates is true?a. The expectations hypothesis indicates a flat yield curve if anticipated future short-term rates exceed current short-term rates.b. The expectations hypothesis contends that the long-term rate is equal to the anticipated short-term rate.c. The liquidity premium theory indicates that, all else being equal, longer maturities will have lower yields.d. The liquidity preference theory contends that lenders prefer to buy securities at the short end of the yield curve.
Why should we care what the Term Structure of Interest Rates looks like? The Expectations Theory of the Term Structure of Interest Rates implies that the term structure is the result of expected inflation rates in the future. What else might cause the term structure to be what it is, that might not be in the Expectations Theory?
Which of the following statements is correct? A.) A flat yield curve occurs when the yield-to-maturity is virtually unaffected by the term-to-maturity. B.) Real interest rates are generally lower than nominal interest rates. C.) Liquidity risk is the risk that a security may be difficult to sell on short notice for its true value. D.) All of these statements are correct.
Which of the following is correct with regards to Theories of Term Structure? When the shape of the yield curve depends on investors’ expectations about prospective prevailing interest rates, the Pure Exception Theory is being applied. When the economic outlook is improving, the yield curve inverts as it reflects no changes in inflation premium. The liquidity preference theory suggests that long-term rates are generally higher than short-term rates since investors perceive more liquidity in long-term investments. Under the Market segmentation theory, there is an apparent relationship between the yield curve and the prevailing rate of returns in each market segment.
Some characteristics of the determinants of nominal interest rates are listed as follows. Identify the components (determinants) and the symbols associated with each characteristic: Characteristic Component Symbol This is the premium added to the real risk-free rate to compensate for a decrease in purchasing power over time. It is based on the bond’s rating; the higher the rating, the lower the premium added, thus lowering the interest rate. It is calculated by adding the inflation premium to r*. It changes over time, depending on the expected rate of return on productive assets exchanged among market participants and people’s time preferences for consumption. As interest rates rise, bond prices fall, and as interest rates fall, bond prices rise. Because interest rate changes are uncertain, this premium is added as a compensation for this uncertainty. This premium is added when a security lacks marketability,…
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If interest rates increase because of a previously unanticipated inflation rate risk? long-lived debt instruments will decline more than short-lived debt instruments long-lived debt instruments will decline less than short-lived debt instruments neither set of debt instruments will decline all other things being equal, both should decline equally
Which of the following statements is CORRECT about the yield curve? A) The yield curve shows the behaviour of interest rate forecasts. B) When short-term rates are lower than long-term rates, there is a downward-sloping yield curve. C) A downward-sloping yield curve shows that investors demand an additional risk premium for lending money over the long term. D) A downward-sloping yield curve indicates that the market expects a future rise in interest rates.