1. The yield on a certain 20-year corporate bond is 14%. The yield on 90-day treasury bills is 8% while 20-year treasury securities are yielding 12%. What is the default risk premium on the corporate bond? Select one: a. 0% b. 1% c. 2% d. 3% e. 4%

An inverted yield curve:

Select one:

a. exists when short-term interest rates are higher than long-term interest rates

b. exists when long-term interest rates are higher than short-term interest rates

c. is also known as a normal yield curve

d. Both a & c

e. Both b & c

If the Treasury yield curve is downward sloping, how should the yield to maturity on a 10-year Treasury coupon bond compare to that on a 1-year T-bill?

Select one:

a. The yield on a 10-year bond would be less than that on a 1-year bill.

b. The yield on a 10-year bond would have to be higher than that on a 1-year bill because of the maturity risk premium.

c. It is impossible to tell without knowing the coupon rates of the bonds.

d. The yields on the two securities would be equal.

e. It is impossible to tell without knowing the relative risks of the two securities.

The increased change in the price of longer term bonds in response to interest rate movements when compared to short term bonds is reflected in the

Select one:

a. pure interest rate

b. default risk premium

c. liquidity risk premium

d. maturity risk premium

Which of the following risk premiums apply to both corporate securities and federal government securities?

Select one:

a. default risk only

b. liquidity risk only

c. maturity risk only

d. both default risk and liquidity risk

e. both liquidity risk and maturity risk

Macroeconomic factors that influence interest rates include all of the following except:

Select one:

a. Federal Reserve policy

b. Federal Budget deficit and surpluses

c. International factors

d. Maturity of the securities