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b.  the liquidity of corporate bonds increases.

c.  the liquidity of corporate bonds decreases.

d.  the riskiness of corporate bonds decreases.

e.  both (b) and (d) occur.

48. If the expected path of oneyear interest rates over the next five years is 4 percent, 5 percent, 7 percent, 8 percent, and 6 percent, then the expectations hypothesis predicts that today's interest rate on the fiveyear bond is

a.  4 percent.

b.  5 percent.

c.  6 percent.

d.  7 percent.

e.  8 percent.

49.  Which of the following theories of the term structure are able to explain the fact that yield curves usually slope upward?

a.  The expectations hypothesis

b.  The segmented markets theory

c.  The preferred habitat theory

d.  Both (b) and (c) of the above

e.  Both (a) and (c) of the above

50. Interest rates on bonds of the same maturity will differ because of differences in

a.  liquidity.

b. risk.

c.  income tax treatment.

d.  all of the above.

e.  only (a) and (b) of the above.

51. Yield curves can be classified as

a.  upward sloping.

b.  downward sloping.

c. flat.

d.  all of the above.

e.  only (a) and (b) of the above.

52.  According to the expectations hypothesis of the term structure

a.  the interest rate on longterm bonds will equal an average of shortterm interest rates that people expect to occur over the life of the longterm bonds.

b.  buyers of bonds do not prefer bonds of one maturity over another.

c.  interest rates on bonds of different maturities move together over time.

d.     only (a) and (b) of the above.

53. According to the segmented markets theory of the term structure

a.  the interest rate on longterm bonds will equal an average of shortterm interest rates that people expect to occur over the life of the longterm bonds.

b.  buyers of bonds do not prefer bonds of one maturity over another.

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