165 $
© 2014 Pearson Canada Inc.$- Based on default risk, which bonds are called: a. "investment grade", b. "junk bonds" or
"speculative-grade", and c. "fallen angels"?
Answer:
a. Investment grade are the bonds that have a relatively low risk of default and are rated BBB or
above.
b. Junk bonds or speculative-grade are the bonds that have relatively higher risk of default and
are rated BB or lower.
c. Fallen angels are the bonds that their rating from investment grade has fallen to junk.
Diff: 1 Type: SA Page Ref: 114 - 115
Skill: Recall
Objective List: 6.1 Describe how default risk, liquidity, and tax considerations affect interest
rates
6.2 Term Structure of Interest Rates
The term structure of interest rates is ____.
A) the relationship among interest rates of different bonds with the same maturity
B) the structure of how interest rates move over time
C) the relationship among the term to maturity of different bonds
D) the relationship among interest rates on bonds with different maturities
Answer: D
Diff: 1 Type: MC Page Ref: 118
Skill: Recall
Objective List: 6.2 Explain how interest rates on bonds with different maturities are related
A plot of the interest rates on default-free Canada bonds with different terms to maturity is
called ____.
A) a risk-structure curve
B) a default-free curve
C) a yield curve
D) an interest-rate curve
Answer: C
Diff: 1 Type: MC Page Ref: 118
Skill: Recall
Objective List: 6.2 Explain how interest rates on bonds with different maturities are related
Differences in ____ explain why interest rates on Treasury securities are not all the same.
A) risk
B) liquidity
C) time to maturity
D) tax characteristics
Answer: C
Diff: 1 Type: MC Page Ref: 118
Skill: Applied
Objective List: 6.2 Explain how interest rates on bonds with different maturities are related