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The additional incentive that the purchaser of a Treasury security requires to buy a long-term
security rather than a short-term security is called the ____.
A) risk premium
B) term premium
C) tax premium
D) market premium
Answer: B
Diff: 1 Type: MC Page Ref: 125
Skill: Recall
Objective List: 6.2 Explain how interest rates on bonds with different maturities are related
The preferred habitat theory of the term structure is closely related to the ____.
A) expectations theory of the term structure
B) segmented markets theory of the term structure
C) liquidity premium theory of the term structure
D) the inverted yield curve theory of the term structure
Answer: C
Diff: 2 Type: MC Page Ref: 125
Skill: Recall
Objective List: 6.2 Explain how interest rates on bonds with different maturities are related
If 1-year interest rates for the next three years are expected to be 4, 2, and 3 percent, and the
3 - year term premium is 1 percent, than the 3-year bond rate will be ____.
A) 1 percent
B) 2 percent
C) 3 percent
D) 4 percent
Answer: D
Diff: 2 Type: MC Page Ref: 126
Skill: Applied
Objective List: 6.2 Explain how interest rates on bonds with different maturities are related
If 1-year interest rates for the next five years are expected to be 4, 2, 5, 4, and 5 percent, and
the 5-year term premium is 1 percent, than the 5-year bond rate will be ____.
A) 2 percent
B) 3 percent
C) 4 percent
D) 5 percent
Answer: D
Diff: 2 Type: MC Page Ref: 126
Skill: Applied
Objective List: 6.2 Explain how interest rates on bonds with different maturities are related