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1、Chapter 15The Term Structure of Interest Rates Multiple Choice Questions1.The term structure of interest rates is:A.The relationship between the rates of interest on all securities.B.The relationship between the interest rate on a security and its time to maturity.C.The relationship between the yiel
2、d on a bond and its default rate.D.All of these are correct.E.None of these is correct.2.Treasury STRIPS areA.securities issued by the Treasury with very long maturities.B.extremely risky securities.C.created by selling each coupon or principal payment from a whole Treasury bond as a separate cash f
3、low.D.created by pooling mortgage payments made to the Treasury.E.created both by selling each coupon or principal payment from a whole Treasury bond as a separate cash flow and by pooling mortgage payments made to the Treasury.3.The value of a Treasury bond shouldA.be equal to the sum of the value
4、of STRIPS created from it.B.be less than the sum of the value of STRIPS created from it.C.be greater than the sum of the value of STRIPS created from it.D.be greater than or less than the sum of the value of STRIPS created from it.E.None of these is correct.4.If the value of a Treasury bond was high
5、er than the value of the sum of its parts (STRIPPED cash flows) you couldA.profit by buying the stripped cash flows and reconstituting the bond.B.not profit by buying the stripped cash flows and reconstituting the bond.C.profit by buying the bond and creating STRIPS.D.not profit by buying the stripp
6、ed cash flows and reconstituting the bond but profit by buying the bond and creating STRIPS.E.None of these is correct.Multiple Choice Questions5.If the value of a Treasury bond was lower than the value of the sum of its parts (STRIPPED cash flows) you couldA.profit by buying the stripped cash flows
7、 and reconstituting the bond.B.not profit by buying the stripped cash flows and reconstituting the bond.C.profit by buying the bond and creating STRIPS.D.not profit by buying the stripped cash flows and reconstituting the bond and profit by buying the bond and creating STRIPS.E.None of these is corr
8、ect.6.If the value of a Treasury bond was lower than the value of the sum of its parts (STRIPPED cash flows)A.arbitrage would probably occur.B.arbitrage would probably not occur.C.the FED would adjust interest rates.D.arbitrage would probably not occur and the FED would adjust interest rates.E.None
9、of these is correct.7.If the value of a Treasury bond was higher than the value of the sum of its parts (STRIPPED cash flows)A.arbitrage would probably occur.B.arbitrage would probably not occur.C.the FED would adjust interest rates.D.arbitrage would probably not occur and the FED would adjust inter
10、est rates.E.None of these is correct.8.Bond stripping and bond reconstitution offer opportunities for _, which can occur if the _ is violated.A.arbitrage; Law of One PriceB.arbitrage; restrictive covenantsC.huge losses; Law of One PriceD.huge losses; restrictive covenantsE.both arbitrage and huge lo
11、sses; restrictive covenants9._ can occur if _.A.arbitrage; the Law of One Price is not violatedB.arbitrage; the Law of One Price is violatedC.riskless economic profit; the Law of One Price is not violatedD.riskless economic profit; the Law of One Price is violatedE.both arbitrage and riskless econom
12、ic profit; the Law of One Price is violated10.The yield curve shows at any point in time:A.The relationship between the yield on a bond and the duration of the bond.B.The relationship between the coupon rate on a bond and time to maturity of the bond.C.The relationship between yield on a bond and th
13、e time to maturity on the bond.D.All of these are correct.E.None of these is correct.11.An inverted yield curve implies that:A.Long-term interest rates are lower than short-term interest rates.B.Long-term interest rates are higher than short-term interest rates.C.Long-term interest rates are the sam
14、e as short-term interest rates.D.Intermediate term interest rates are higher than either short- or long-term interest rates.E.None of these is correct.12.An upward sloping yield curve is a(n) _ yield curve.A.normalB.humpedC.invertedD.flatE.None of these is correct13.According to the expectations hyp
15、othesis, an upward sloping yield curve implies thatA.interest rates are expected to remain stable in the future.B.interest rates are expected to decline in the future.C.interest rates are expected to increase in the future.D.interest rates are expected to decline first, then increase.E.interest rates are expected to increase first, then decrease.14.Which of the following is not proposed as an explanation for the term structure of interest rates?A.The expectations theory.B.The liquidity preference theory.C
