1.If the risk of bankruptcy decreases for a corporation, then the yield for its bonds _____ and the risk premium _____.

1. rises, rises
2. rises, falls
3. falls, falls
4. falls, rises

2.The yield on a one year bond is 3%. The expected yield for the one year bond a year later is 4%. The expected yield for the one year bond in 2 years is 5%. According to the expectations hypothesis, the yield on a three year bond should be _____.

1. 3%
2. 4%
3. 5%
4. None of the above

3.The yield on a one year bond is 3%. The expected yield on a one year bond, one year in the future is 4%. The expected yield on a one year bond in 2 years is 5%. Using a liquidity premium of 0.5(n-1)%, the yield on 2 year bond should be _____ .

1. 3%
2. 3.5%
3. 4%
4. 4.5%
5. 5%

4.The yield on a one year bond is 3%. The expected yield on a one year bond, one year in the future is 4%. The expected yield on a one year bond in 2 years is 5%. Using a liquidity premium of 0.5(n-1)%, the yield on 3 year bond should be _____ .

1. 3%
2. 3.5%
3. 4%
4. 4.5%
5. 5%

5.The yield on a one year bond is 3%. The expected yield on a one year bond, one year in the future is 4%. The expected yield on a one year bond in 2 years is 5%. The liquidity premium 0.5(n-1)%. The "3-2" spread is _____ .

1. -.5%
2. -1%
3. 0%
4. 0.5%
5. 1%