Money & Banking Chapter 5 The Structure of Interest Rates

One hundredth of a percentage point is also called a minion. one basis point. a centipercent. 01 cubits.

one basis point.

A basis point equals one hundredth of a percentage point. one tenth of a percentage point. one half of a percentage point. ten percentage points.

one hundredth of a percentage point.

The process of turning assets such as mortgages into securities sold to investors is default. standard deviation. standardization. securitization.

securitization.

Which of the following bonds has the greatest interest-rate risk? A one-year bond A five-year bond A ten-year bond A thirty-year bond

A thirty-year bond

What does a flat yield curve imply, according to the expectations theory of the term structure of interest rates? The price level will not change in the future. Future long-term rates are expected to rise. Future long-term rates are expected to fall. Future short-term rates are not expected to change.

Future short-term rates are not expected to change.

Usually in recessions, short-term interest rates ____ and long-term interest rates ____. rise; rise rise; fall fall; fall fall; rise

fall; fall

What does a yield curve show? The yield to maturity on the vertical axis and the time to maturity on the horizontal axis The time to maturity on the vertical axis and the yield to maturity on the horizontal axis The yield to maturity on the vertical axis and the date on the horizontal axis The date on the vertical axis and the yield to maturity on the horizontal axis

The yield to maturity on the vertical axis and the time to maturity on the horizontal axis

off-the-run security

a U.S. Treasury security that is not the most recently issued.

inverted yield curve

a downward-sloping yield curve.

yield curve

a plot of interest rates for a given date for debt securities with different times to maturity in which the yield to maturity is shown on the vertical axis and the time to maturity is shown on the horizontal axis.

A plot of the yield to maturity on the vertical axis and the time to maturity on the horizontal axis is known as an interest rate graph. a graphic term structure. a yield curve. a term structure plot.

a yield curve.

term premium

the difference between the interest rate on a longer-term bond and the average interest rate on shorter-term bonds, which arises from interest-rate risk.

The term premium is the interest rate on a long-term bond minus the average interest rate on future short-term bonds. the interest rate on a long-term bond plus the average interest rate on future short-term bonds. the average interest rate on future short-term bonds. the standard deviation of the interest rate on long-term bonds.

the interest rate on a long-term bond minus the average interest rate on future short-term bonds.

on-the-run security

the U.S. Treasury security (for a given time to maturity) that was issued most recently in the primary market.

According to the expectations theory of the term structure of interest rates, if the interest rate on a one-year bond today is 3.0 percent, the expected interest rate on a one-year bond one year from now is 4.0 percent, and the expected interest rate on a one-year bond two years from now is 4.5 percent, then the interest rate on a two-year bond today is 3.00 percent. 3.50 percent. 3.83 percent. 4.00 percent.

3.50 percent.

Which of the following bonds has the greatest term premium? A one-year bond A five-year bond A ten-year bond A thirty-year bond

A thirty-year bond

Put the following securities in order according to their likely yields to maturity, from highest to lowest, in the middle of an economic expansion. A: The on-the-run Treasury bond with ten years to maturity B: The off-the-run Treasury bond with nine-and-one-half years to maturity C: The off-the-run Treasury bond with twenty-four years to maturity A, C, B B, A, C C, B, A C, A, B

C, A, B ??? or C,B, A ???

What does an upward-sloping yield curve imply, according to the expectations theory of the term structure of interest rates? Investors expect long-term interest rates to fall in the future. Investors expect future short-term interest rates to be lower than the current short-term interest rate. Investors expect future short-term interest rates to be the same as the current short-term interest rate. Investors expect future short-term interest rates to be higher than the current short-term interest rate.

Investors expect future short-term interest rates to be higher than the current short-term interest rate.

What does a downward-sloping yield curve imply, according to the expectations theory of the term structure of interest rates? Investors expect long-term interest rates to rise in the future. Investors expect future short-term interest rates to be lower than the current short-term interest rate. Investors expect future short-term interest rates to be the same as the current short-term interest rate. Investors expect future short-term interest rates to be higher than the current short-term interest rate.

Investors expect future short-term interest rates to be lower than the current short-term interest rate.

What does a flat yield curve imply, according to the expectations theory of the term structure of interest rates? Investors expect long-term interest rates to rise in the future. Investors expect future short-term interest rates to be lower than the current short-term interest rate. Investors expect future short-term interest rates to be the same as the current short-term interest rate. Investors expect future short-term interest rates to be higher than the current short-term interest rate.

Investors expect future short-term interest rates to be the same as the current short-term interest rate.

basis point

one-hundredth of a percentage point.

The process of turning assets such as mortgages into securities sold to investors is default. standard deviation. standardization. securitization.

securitization.

term spread

the interest rate on a long-term debt security minus the interest rate on a short-term debt security.

securitization

the process by which financial intermediaries that own assets (such as mortgage loans) sell them off to another company, which in turn sells bonds to investors; the interest payments on those bonds are paid from the interest payments on the original assets (such as mortgage payments).

Securitization is the process of turning assets such as mortgages into securities sold to investors. the method used by financial intermediaries when they purchase securities in the secondary market. a procedure used by the Federal Reserve and the Securities and Exchange Commission when allowing a bond to be sold on the primary market. the main method used by the Department of Homeland Securitization.

the process of turning assets such as mortgages into securities sold to investors.

term structure of interest rates

the relationship between interest rates with differing times to maturity.

The interest rate on a long-term bond minus the average interest rate on future short-term bonds is known as risk. the term premium. a basis point. the yield curve.

the term premium.

expectations theory of the term structure of interest rates

the theory that a long-term interest rate is equal to the average of current and expected future short-term interest rates on securities maturing on the same date as the long-term security.

When a recession is about to begin, you are likely to observe that the yield curve is sharply upward sloping. the yield curve is somewhat upward sloping. the yield curve is flat or inverted. the yield curve is upward sloping for short times to maturity, then downward sloping for longer times to maturity.

the yield curve is flat or inverted.

When an economic expansion has just begun, you are likely to observe that the yield curve is sharply upward sloping. the yield curve is somewhat upward sloping. the yield curve is flat or inverted. the yield curve is upward sloping for short times to maturity, then downward sloping for longer times to maturity.

the yield curve is sharply upward sloping.