Chapter 7 Money and Banking

14. If a bond's rating improves, we would expect: A. The demand for this bond to increase, all other factors constant B. The demand for and the yield of this bond to increase, all other factors constant C. The demand for this bond to decrease, and its yield to increase, all other factors constant D. Both the demand for and the price of the bond to decrease, all other factors constant

A

17. The risk spread: A. Is also known as the default-risk premium B. Should have a direct relationship with the bond's price C. Should have an inverse relationship with the bond's yield D. Is always constant

A

20. The default-risk premium: A. Should vary directly with the bond's yield and inversely with its price B. Is less than 0 (zero) for a U.S. Treasury bond C. Should be lower for a highly speculative bond than for an investment-grade bond D. Should vary directly with the bond's yield and the bond's price

A

77. Under the Liquidity Premium Theory, if investors expect short-term interest rates to remain constant, the yield curve should: A. Have a positive slope B. Have a negative slope C. Be flat D. Have an increasing slope

A

80. Under the liquidity premium theory, if investors become less certain about future monetary policy, the yield curve should: A. Become more upward sloping B. Become flatter C. Become inverted D. Be vertical

A

83. We would expect the risk spread between Baa bonds and U.S. Treasury securities of the same maturities to: A. Widen during periods of economic recession B. Remain relatively constant over the business cycle C. Decrease during economic slowdowns D. Increase during economic growth periods

A

50. Interest on most bonds issued by states is usually exempt from: A. State income tax but not federal B. Federal income tax but not state C. Both state and federal income taxes D. City income taxes

C

53. The yield curve for U.S. Treasury securities allows us to draw the following conclusions, except that: A. Long-term yields tend to higher than short term yields B. Interest rates of different maturities tend to move together C. Long-term rates tend to equal short-term rates D. Yields on short-term securities are more volatile than yields on long-term bonds

C

54. When the yield curve is upward sloping, people are expecting: A. An economic slowdown B. The U.S. Treasury may default on its obligations C. The Federal Reserve is going to ease monetary policy D. Long-term yields to be higher than short-term yields

D

22. U.S. Treasury securities are considered to carry no risk spread because: A. They are the closest thing to default-risk free that an investor can obtain B. The prices of U.S. Treasury bonds never change C. The yields on U.S. Treasury bonds never change D. The yields on U.S. Treasury bonds are zero

A

29. The yield on a tax-exempt bond: A. Equals the taxable bond yield times one minus the tax rate B. Is equal to the yield on a U.S. 30-year bond C. Is called the risk-free yield D. Only applies to foreign bonds because they are exempt from U.S. income taxes

A

3. Investors usually obtain bond ratings from: A. Private bond-rating agencies B. The annual tax returns of the issuer C. The U.S. government from publicly available information D. Public Information made available by the bond issuers

A

30. Holding risk constant, an investor earning 6% from a tax-exempt bond who is in a 25% tax bracket would be indifferent between that bond and: A. A taxable bond with a 8% yield B. A taxable bond with a 4.5% yield C. A taxable bond with a 6.25% yield D. A taxable bond with a 7.5% yield

A

38. According to the Expectations Theory of the term structure, if interest rates are expected to be 2%, 2%, 4%, and 5% over the next four years, what is the yield on a three-year bond today? A. 2.7% B. 4% C. 4.3% D. 8%

A

39. Suppose the economy has an inverted yield curve. According to the Expectations Hypothesis, which of the following interpretations could be used to explain this? A. Interest rates are expected to fall in the future B. Investors prefer bonds with more interest-rate risk C. Investors prefer bonds with less interest-rate risk D. The term spread is positive

A

46. The U.S. Treasury yield curve: A. Shows the relationship among bonds with the same risk characteristics but different maturities B. Assumes maturities are constant, and reflects the difference in risk C. Always has a positive slope D. Always has a negative slope

A

55. When the yield curve is downward sloping: A. People are expecting an economic slowdown B. Short-term yields are lower than long term yields C. People are expecting higher inflation in the future D. People could be expecting a tightening in monetary policy

A

61. Assume the Expectations Hypothesis regarding the term structure of interest rates is correct. Then, if the current two-year interest rate is 5% and the current one-year rate is 6%, then investors expect: A. The future one-year rate to be 4% B. The future one-year rate to be 5% C. The future one-year rate to be 6% D. The future one-year rate to be 1%

A

67. Under the Expectations Hypothesis, a downward-sloping yield curve suggests: A. Investors expect future short-term interest rates to fall B. Investors expect future short-term interest rates to rise C. This is a trick question, the yield curve always slopes upward D. Investors expect future short-term interest rates to remain constant

A

7. The lowest rating for an investment grade bond assigned by Moody's is: A. Baa B. A C. BBB D. Aa

A

73. The addition of the Liquidity Premium Theory to the Expectations Hypothesis allows us to explain why: A. Yield curves usually slope upward B. Interest rates on bonds of different maturities move together C. Long-term interest rates are less volatile than short term interest rates D. Yield curves are flat

A

89. A proposed increase in the federal income tax rate should: A. Have no impact on the slope of the yield curve since the tax laws impact all maturities the same B. Cause the slope of the yield curve to become negative C. Increase the slope of the yield curve since it increases the risk premium of longer maturities D. Flatten the yield curve

A

9. Which of the following would be most likely to earn an AAA rating from Standard & Poor's? A. A 30-year bond issued by the U.S. Treasury B. A bond issue by a new vegetarian fast-food chain C. A 10-year bond issued by a state or municipality D. Shares of stock in Coca-Cola

A

91. The terrorist attack on the World Trade Center on September 11, 2001: A. Triggered a flight to quality in the bond market B. Caused the demand for U.S. Treasury securities to fall and the demand for corporate bonds to rise C. Caused the price of U.S. Treasury securities to fall and the yields on corporate bonds to fall D. Did not have any significant impact since the risk on all bonds increased

A

98. A yield curve that slopes upward says each of the following, except: A. Short-term rates are expected to decrease B. People may be expecting short-term rates will be higher in the future C. Short-term rates could be expected to remain constant D. Long-term interest rates are higher than current short-term rates

A

5. Which of the following assigns widely followed bond ratings? A. The Federal Reserve B. The Wall Street Journal C. Moody's Investor Service D. The Nasdaq

C

10. Once a bond rating is assigned, it: A. Never changes over the life of the bond B. Can change as the financial position of the issuer changes C. Can only change if the rating change is approved by the Securities and Exchange Commission D. Can change on the next bond from the issuer but is fixed for the current bond

B

15. Bonds issued by the U.S. Treasury are referred to as benchmark bonds because: A. They are always purchased for a premium B. They are the closest thing to a risk-free bond C. All bonds from national governments are labeled as benchmark bonds D. All bonds from the U.S. government have the same rate of interest

B

16. The risk spread is: A. The difference between a bond's purchase price and selling price B. The difference between the bond's yield and the yield on a U.S. Treasury bond of the same maturity C. Less than 0 (zero) for a U.S. Treasury bond D. Assigned by a bond-rating agency

B

19. The default-risk premium: A. Is negative for a U.S. Treasury bond B. Is also known as the risk spread C. Must always be greater than 0 (zero) D. Is assigned by a bond-rating agency

B

21. The risk structure of interest rates says: A. The interest rates on a variety of bonds will move independently of each other B. Lower rated bonds will have higher yields C. U.S. Treasury bond yields always change by more than other bonds D. Interest rates only compensate for risk in structured amounts

B

23. The risk structure of interest rates refers to: A. The relationship among the interest rates of bonds with different maturities B. The relationship among the interest rates of bonds with the same maturities C. The relationship among the interest rates of bonds from the same issuer but different maturities D. The additional interest required to compensate the buyer for the longer maturity of the bond

B

24. A borrower who has to pay an interest rate of 8% rather than 6% due to risk spread will: A. Pay $20 more in interest annually for every $100 borrowed B. Pay 33.3% higher interest in dollar terms C. Pay 2% in net interest D. Pay less interest in total over the life of the loan

B

36. If a local government eliminates the tax exemption on municipal bonds, we'd expect to see: A. An increase in the yield on taxable bonds B. A decrease in the gap in yields on taxable and tax-exempt bonds C. A decrease in the yield on municipal bonds D. Municipal bonds will become more attractive to investors

B

43. In the fall of 1998 we saw an increase in the risk spread because: A. The risk spread always increases as we approach the end of the year B. The Russian government defaulted on some of its bonds C. There was an extraordinarily large amount of corporate fraud being reported in 1998 D. There was a significant increase in U.S. income tax rates

B

44. A company that continues to have strong profit performance during an economic downturn when many other companies are suffering losses or failing should: A. See an increase in the yield of their bonds and the price of the bond increases B. See their bond rating maintained or actually increase C. See the demand for their bonds decrease and their yields decrease D. See the demand and price for their bonds decrease

B

45. Bonds with the same tax status and ratings: A. Always have the same yield B. Can have different yields due to different maturities C. Should sell for the same price D. Will still have different yields depending on their face values

B

47. During a recession you would expect the difference between the commercial paper rate and the yield on U.S. T-bills of the same maturity to: A. Be the same since their maturities are the same B. Increase reflecting the possibility of higher default risk for commercial paper C. Decrease D. Fluctuate on a daily basis

B

48. Which of the following statements pertaining to the yield curve is not true? A. Yield curves usually slope upwards B. The yield curve shows the difference in default risk between securities C. The yield curve shows the relationship among bonds with the same risk characteristics but different maturities D. The yield curve can be flat or downward sloping depending on market conditions

B

51. The term structure of interest rates: A. Always results in an upward sloping yield curve B. Represents the variation in yields for securities differing in maturities C. Usually results in a flat yield curve D. Usually results in a downward sloping yield curve

B

52. Which of the following statements in not true of the yield curve for U.S. Treasury securities? A. The yield curve usually slopes upward B. The yield curve usually has a positive slope at first then becomes inverted C. The yield curve shows the relationship among securities of different maturities D. The yield curve can shift over time

B

57. The Expectations Hypothesis assumes: A. A high level of uncertainty regarding the future of long-term yields B. Investors know the yields on bonds today and form expectations of the yields on short-term bonds in future time periods C. Securities of different maturities are not perfect substitutes for each other D. The risk premium increases with longer maturities

B

60. Assume the Expectation Hypothesis regarding the term structure of interest rates is correct. Then, if the current one-year interest rate is 4% and the two-year interest rate is 6%, then investors are expecting: A. The future one-year rate to be 4% B. The future one-year rate to be 8% C. The future one-year rate to be 6% D. The future one-year rate to be 5%

B

63. Assume an investor has a choice of 3 consecutive one-year bonds or one 3-year bond. Assuming the Expectations Hypothesis of the term structure of interest rates is correct: A. The average interest rate of the three consecutive one-year bonds should be less than the 3-year bond to reflect the risk premium B. The interest rate of the 3-year bond should equal the average interest rate of the 3 one-year bonds C. The three consecutive one-year bonds must have the same interest rate D. The current one-year interest rate must equal the current 3-year interest rate

B

42. The risk spread on bonds fluctuates mainly because: A. Taxes tend to increase over time B. Bond rating agencies are often inconsistent C. New information about a borrower's financial condition becomes available D. People change their attitudes towards risk quickly

C

65. According to the Expectations Hypothesis, if investors believed that, for a given holding period, the average of the expected future short-term yields was greater than the long-term yield for the holding period, they would act so as to: A. Drive down the price of the short-term bond and drive up the price of the long-term bond B. Drive up the price of the short-term bond and drive down the price of the long-term bond C. Drive up the prices of both the short- and long-term bonds D. Drive down the prices of both the short- and long-term bonds

B

68. The Expectations Hypothesis assumes each of the following, except: A. Long-term bond rates are equal to the average of current and expected future short-term interest rates B. Bonds of different maturities are not perfect substitutes C. Bonds of different maturities have the same risk characteristics D. Bonds of different maturities are perfect substitutes

B

69. Suppose that interest rates are expected to remain unchanged over the next few years. However, there is a risk premium for longer-term bonds. According to the liquidity premium theory, the yield curve should be: A. Upward sloping and very steep B. Upward sloping and relatively flat C. Inverted D. Vertical

B

70. Suppose the economy has an inverted yield curve. According to the Liquidity Premium Theory, which of the following interpretations could be used to explain this? A. Interest rates are expected to rise in the future B. Investors expect an economic slowdown C. Investors are indifferent between bonds with different time horizons D. The term spread has increased

B

8. Bonds rated as "highly speculative": A. Are rated so because they guarantee high returns for the buyer B. Are commonly referred to as junk bonds C. Are ranked just below investment grade by Standard & Poor's D. Are rated so because they do not have any default risk

B

86. When the Russian government defaulted on its bonds in August 1998: A. Risk spreads decreased significantly B. Yields on U.S. Treasury securities fell while yields on corporate bonds rose C. Yields on U.S. Treasury securities rose while prices of corporate bonds rose D. Risk spreads increased significantly

B

87. An inverted yield curve is a valuable forecasting tool because: A. The yield curve usually is inverted so it reflects a growing economy B. The yield curve seldom is inverted and can signal an economic slowdown C. Investors are expecting higher short-term rates in the future, and this usually signals an economic slowdown D. Inverted yield curves signal better economic times are expected

B

88. The slope of the yield curve seems to predict the performance of the economy: A. Usually with a 3-month lag B. Usually with a one-year lag C. Usually within a few weeks D. Usually with a two-year lag

B

90. How would you expect the mayors of most U.S. cities to respond to a proposed significant reduction in U.S. income taxes? A. Favorably, since this will significantly increase the demand for municipal bonds B. Unfavorably, the demand for municipal bonds will fall and their yields will increase C. Favorably, the price of municipal bonds should increase and their yields fall D. No reaction, this should have no impact on municipal bonds at all

B

92. If the Federal Reserve announces an easing of monetary policy and this move was not expected: A. It should have no impact on the slope of the yield curve B. We should expect the yield curve to possibly become inverted C. The slope of the yield curve would become larger D. We should expect the yield curve to steepen

B

95. The presence of a term spread that is usually positive indicates that: A. The yield curve always slopes upward B. Bonds of similar risk but with different maturities are not perfect substitutes C. We should expect the yield curve to usually be flat D. We should expect the yield curve to usually slope downward

B

96. The interest-rate risk that is associated with bond investing: A. Is exists even if an investor plans on holding the bond to maturity B. Arises because of a mismatch between the investor's investment horizon and the maturity of the bond C. Is not reflected in the risk premium D. Can be eliminated by holding only short-term bonds

B

99. Under the Expectations Hypothesis, bonds of different maturities are assumed to be perfect substitutes because: A. The risk premium is assumed to be negative B. Market forces would always have long-term interest rates equal the average of the current and expected short-term rate C. Expectations of future interest rates are uncertain and therefore cannot be included in the analysis D. Bond markets are very liquid

B

The bond rating of a security reflects: A. The size of the coupon payment relative to the face value B. The likelihood the lender/borrower will be repaid by the borrower/issuer C. The return a holder is likely to receive D. The size of the coupon rate relative to other interest rates

B

12. Most commercial paper is: A. Issued with maturities exceeding one year B. Issued with maturities between 50 and 75 days C. Used exclusively for short-term financing needs D. Issued by foreign companies doing business in the United States

C

13. If a bond's rating improves it should cause: A. The bond's price and yield to increase, all other factors constant B. The bond's price and yield to decrease, all other factors constant C. The bond's price to increase and its yield to decrease, all other factors constant D. The bond's price to decrease and its yield to increase, all other factors constant

C

25. Which of the following is true? A. Long-term bond yields move together but short-term yields do not B. Short-term bond yields move together but long-term yields do not C. U.S. Treasury Bill yields are lower than the yields on commercial paper D. Long-term bond yields are usually the same as short-term yields

C

26. Taxes play an important role in bond returns because: A. All interest from owning bonds is taxed B. All governments (federal, state, municipal) tax bonds similarly C. Some bond interest is exempt from some government taxation, so after tax returns across bonds can vary considerably D. Only U.S. Treasury bonds are tax-exempt, so investors should always seek higher returns from other bonds

C

28. An investor in a 30% marginal tax bracket, earning $10 in interest annually for a $100 U.S. Treasury bond: A. Earns a 10% after-tax return because interest on U.S. Treasury bonds is tax exempt at the federal level B. Earns a 3% return after-tax C. Would be indifferent between this bond and a municipal bond offering $7 annually per $100 of face value, assuming the same default risk D. Earns a 1% return after-tax

C

31. Holding risk constant, an investor earning 4% from a tax-exempt bond who is in a 20% tax bracket would be indifferent between that bond and: A. A taxable bond with a 7.5% yield B. A taxable bond with a 8.0% yield C. A taxable bond with a 5% yield

C

33. Suppose the tax rate is 25% and the taxable bond yield is 8%. What is the tax-exempt bond yield? A. 2% B. 2.3% C. 6% D. 6.9%

C

35. Tax-exempt bonds: A. Generate higher returns for the bondholder when purchased through a tax-exempt retirement account B. Are not affected by changes in yields on taxable bonds C. Are most beneficial to those who pay higher income tax rates D. Include U.S. Treasury securities because the Internal Revenue Service does not charge income tax on interest earned from these bonds

C

37. Which of the following is not typically used for qualifying mortgages as prime or subprime? A. The borrower's income B. The borrower's credit score C. The borrower's race D. The loan to value ratio

C

40. Which fact about the term structure is the Expectations Theory unable to explain? A. Why interest rates on bonds with different terms to maturity tend to move together over time B. Why yields on short-term bonds are more volatile than yields on long-term bonds C. Why longer-term yields tend to be higher than shorter-term yields D. Why yields on short-term bonds are more volatile than yields on long-term bonds and why longer-term yields tend to be higher than shorter-term yields

C

56. Any theory of the term structure of interest rates needs to explain each of the following, except: A. The upward slope of the yield curve B. Why the yields of different maturities tend to move together C. Why short-term yields are usually higher than long-term yields D. Why long-term yields are usually higher than short-term yields

C

59. The yield on a 30-year U.S. Treasury security is 6.5%; the yield on a 2-year U.S. Treasury bond is 4.0%. This data: A. Indicate the yield curve is downward sloping B. Indicate the yield curve is flat since the risk premium needs to be added for longer maturities C. Indicate the yield curve is upward sloping D. Indicate that people expect inflation to decrease in the future

C

6. What is the highest bond rating assigned by Standard and Poor's? A. AA B. EEE C. AAA D. A

C

62. Assume the Expectations Hypothesis regarding the term structure of interest rates is correct. If the current one-year interest rate is 3% and the expected one-year interest rate is 5%, then the current two-year interest rate should be: A. 3% B. 5% C. 4% D. 8%

C

64. According to the Expectations Hypothesis: A. When short-term interest rates are expected to rise in the future, the long-term interest rates are equal to current short-term interest rates B. When short-term rates are expected to remain constant in the future, the long-term interest rates are higher than current short-term interest rates C. Short-term bonds are perfect substitutes for long-term bonds D. Expectations of future short-term rates equal estimates of current short-term rates

C

66. The Expectations Hypothesis cannot explain: A. Why yields on securities of different maturities move together B. Why short-term yields are more volatile than long term yields C. Why yield curves usually slope upward D. Why yield curves usually slope downward

C

71. The economy enters a period of robust economic growth that is expected to last for several years. How would this be reflected in the risk and term structures of interest rates? A. An inverted yield curve B. A decrease in the term spread C. A decrease in the interest rate spread

C

74. The reason for the increase in inflation risk over time is due to the fact that: A. The inflation rate always increase over time B. We always have inflation C. It is more difficult to forecast inflation over longer periods of time D. Investors are more focused on nominal returns than real returns

C

76. Under the Liquidity Premium Theory a flat yield curve implies: A. There is no risk premium for longer-term maturities B. Short-term interest rates are expected to remain constant C. Short-term interest rates are expected to decrease D. Long-term interest rates are higher than short-term interest rates

C

78. Under the expectations hypothesis, if expectations are for lower inflation in the future than what it currently is, the yield curve's slope: A. Will become more upward sloping B. Will become flat C. Will be negative D. Will be vertical

C

81. When the growth rate of the economy slows we would expect: A. The risk to increase for U.S. Treasury securities B. The risk spread to increase more between U.S. Treasury Securities and Aaa securities than between Aaa and Baa securities C. The risk spread to increase more between Aaa and Baa securities than U.S. Treasuries and Aaa securities D. Investors to purchase more junk bonds in search of a higher yield

C

84. We would expect the relationship between the risk spread on Baa bonds and U.S. Treasury securities of similar maturities to: A. Vary directly with economic growth B. Show no variation over the business cycle C. Vary inversely with economic growth D. Breakdown with economic growth

C

93. Increasing tensions in many parts of the world should: A. Cause the demand for all government securities including U.S. Treasury securities to decrease B. Cause the risk spread between U.S. Treasury bonds and other bonds to decrease C. Cause the price of U.S. Treasury bonds to increase and the yield on other bonds to increase D. Cause the price of U.S. Treasury bonds to increase and the yield on other bonds to decrease

C

94. Increased borrowing by the U.S. Treasury to finance growing budget deficits will: A. Result in U.S. Treasury yields being higher than high-grade corporate bonds B. Result in the price of U.S. Treasury bonds rising C. Cause the yield on U.S. Treasury bonds to increase, but still be lower than corporate bonds D. Result in lower yields on corporate bonds

C

97. Imagine a scandal that finds the officers of bond rating agencies have been taking bribes to inflate the rating of specific bonds. This should: A. Have no impact on the bond market since bond markets are highly efficient B. Decrease the demand for all bonds C. Increase the demand for U.S. Treasury securities and decrease the demand for corporate bonds D. Decrease the risk spread

C

100. A proposed increase in the federal income tax rates may actually be viewed favorably by many mayors of cities because: A. It will allow them to also raise their tax rates B. It will cause the demand for municipal bonds to increase and their yields to increase C. People will pay less attention to local taxes D. It will cause the price of municipal bonds to increase and their yields to decrease

D

11. Commercial paper refers to: A. The financial publications read by the CEOs of public corporations B. Any debt security with a maturity exceeding one year C. Short-term collateralized securities issued only by corporations D. Unsecured short-term debt issued by corporations and governments

D

18. All of the following are true about the risk spread except: A. It should be higher for highly speculative bonds than investment grade bonds B. It should have a direct relationship with the bond's yield C. It should have an inverse relationship with the bond's price D. It should have a direct relationship with the bond's price

D

2. The two best known bond rating services are: A. The Federal Reserve and Moody's Investment Services B. The Federal Reserve and the U.S. Treasury C. Standard & Poor's and the Wall Street Journal D. Standard & Poor's and Moody's Investment Services

D

27. Municipal bonds are issued by: A. Cities only B. The U.S. Treasury, but the proceeds can only be used by cities C. States and cities, but their interest is taxable only at the federal level D. States and cities and their interest is exempt from U.S. government taxation

D

32. Municipal bonds are usually purchased by: A. Retired investors who have no other taxable income B. Investors looking for securities to buy for their IRA accounts C. Investors who live in cities with high municipal tax rates D. Investors who are in high marginal tax brackets

D

34. In 2003, ratings agencies downgraded bonds issued by the State of California several times. How will this affect the market for these bonds? A. Yields on these bonds will decrease and the yield on Treasury bonds will increase B. The yield on these bonds will not change, nor will the yield on Treasury bonds C. The yield on these bonds and on Treasury bonds will both decrease D. Yields on these bonds will increase

D

4. Which of the following assigns widely followed bond ratings? A. The Federal Reserve B. The U.S. Treasury C. The New York Stock Exchange D. Standard & Poor's

D

41. Which fact about the term structure is the Expectations Theory able to explain? A. Why interest rates on bonds with different terms to maturity tend to move together over time B. Why yields on short-term bonds are more volatile than yields on long-term bonds C. Why longer-term yields tend to be higher than shorter-term yields D. Why interest rates on bonds with different terms to maturity tend to move together over time and why yields on short-term bonds are more volatile than yields on long-term bonds

D

49. If the federal government replaced the current income tax with a national sales tax, the price of: A. Corporate bonds would rise B. Municipal bonds would rise C. Corporate bonds would fall while the price of municipal bonds would rise D. Municipal bonds would fall while the price of corporate bonds would rise

D

58. The Expectations Hypothesis suggests: A. The yield curve should usually be downward sloping B. The yield curve should usually be upward sloping C. The slope of the yield curve reflects the risk premium associated with longer-term bonds D. The slope of the yield curve depends on the expectations for future short-term rates

D

72. If a one-year bond currently yields 4% and is expected to yield 6% next year, the Liquidity Premium Theory suggests the yield today on a two-year bond will be: A. More than 4% but less than 5% B. 5% C. 4% D. More than 5%

D

75. The risk premium that investors associate with a bond increases with all of the following except: A. Maturity B. Inflation risk increases C. Interest-rate risk D. An improved bond rating

D

79. As GDP rises the: A. Risk spread and term spread decrease B. Risk spread and term spread increase C. Risk spread increases and the term spread decreases D. Risk spread decreases and the term spread increases

D

82. A flight to quality refers to a move by investors: A. Away from bonds towards stocks B. Towards securities of other countries and away from U.S. Treasuries C. Towards precious metals and away from U.S. Treasury bonds D. Away from low-quality bonds towards high-quality bonds

D

85. A flight to quality should result in: A. The price of U.S. Treasury Securities rising and the price of corporate bonds rising B. The yield on U.S. Treasury Securities falling and the price of corporate bonds rising C. The yield on corporate bonds falling and the price of U.S. Treasury Securities rising D. The yield on U.S. Treasury securities falling and the price of corporate bonds falling

D