According to the liquidity premium theory:
The term premium increases with the number of years until maturity.
According to the preferred habitat theory, investors require a premium to hold long-term bonds because:
Most prefer short-term bonds.
The statement, "money may serve as an instrument that allows for comparison of the relative worth of various goods and services," describes which function of money?
Unit of account.
Based on considerations of default risk and liquidity alone, the interest rate on municipal bonds should be:
Higher than the interest rate on US government bonds.
Which of the following theories of the term structure of interest rates implies that interest rates on bonds of different maturities will display a tendency to move together over time?
Segmented markets theory.
In money markets:
Only short-term debt instruments are traded.
A contractual agreement assigning ownership to a share in the income and assets of a business. This statement best describes:
Equity
If the government decides to increase spending by way of issuing more bonds (borrowing), then interest rates are expected to:
Decrease.
If the coupon rate is less than the yield to maturity, then the bond is trading at a:
Discount.
According to the loanable funds framework, when a bond becomes more risky relative to other assets:
The interest rate on the bond will fall.
__________ refers to the problem that arises before a loan is made because the least creditworthy borrowers also tend to be the ones who most actively seek out loans.
adverse selection
When a bank uses the same loan contract over and over again, it minimizes transaction costs by taking advantage of __________.
Risk-pooling.
None of the above.
Portfolio diversification.
Diminishing returns.
None of the above.
US Treasury Bonds:
Are issued by the United States Department of the Treasury.
Each of the following are considered money market instruments except:
U.S. Treasury bonds.
Which is a function of money?
Money is used to value goods and services.