Finance Ch. 6

If the pure expectations theory is correct, a downward sloping yield curve indicates that interest rates are expected to decline in the future.

TRUE

Which of the following factors would be most likely to lead to an increase in nominal interest rates?

A new technology like the Internet has just been introduced, and it increases investment opportunities.

Which of the following would be most likely to lead to a higher level of interest rates in the economy?

Corporations step up their expansion plans and thus increase their demand for capital.

Assume that interest rates on a 20 year Treasury and corporate bonds are as follow: T bond=7.72%...AAA=8.72%...A=9.64%...BBB=10.18%........The difference in the interest rates were probably caused primarily by

Default nd liquidity risk differences

If the treasury yield curve were downward sloping, the yield to maturity on a 10 year Treasury coupon bond would be higher than on a 1-year T bill.

FALSE

One of the four most fundamental factors that affect the cost of money as discussed in the text is the current state of the weather. If the weather is dark and stormy, the cost of money will be the higher that if it is bright and sunny. True or False?

FALSE

Because the maturity risk is normally positive, the yield curve is normally upward sloping.

TRUE