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Chapter 3 Structure of Interest Rates QUIZ, Quizzes of Banking and Finance

University of San Carlos (USC)Banking and Finance

Financial Markets and Basic Finance Chapter 3 Structure of Interest Rates QUIZ

Typology: Quizzes

2023/2024

Available from 09/24/2024

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Chapter 3 Overview Video Quiz
1. Which of the following is true of credit ratings on debt securities?
Credit ratings are fixed and cannot not change over time.
Credit rating agencies are regulated by the SEC.
Credit ratings are not available for most debt securities.
Credit ratings are objective facts, not opinions.
2.Which of the following is true regarding liquidity?
All else equal, a security with lower liquidity must offer a lower yield to attract
investors.
All else equal, investors prefer securties with less liquidity.
All else equal, a security with lower liquidity must offer a higher yield to
attract investors.
All else equal, a security with higher liquidity must offer a higher yield to attract
investors.
3.Which of the following is true regarding the tax status of debt securities?
All else equal, taxable securities must offer a higher before-tax yield than
tax-exempt securities.
Investors in lower tax brackets benefit the most from tax-exempt securities.
All else equal, tax-exempt securities must offer a higher before-tax yield than
taxable securities.
Investors care more about before-tax income from securities than they do about
after-tax income from securities.
4.Which of the following best represents the formula for after-tax yield (Yat)? Assume
that T represents tha tax rate and Ybt represents the before-tax yield.
Yat = Ybt(1 + T)
Yat = Ybt/(1 - T)
Yat = Ybt(1 - T)
Yat = Ybt + (1 - T)
5.Which of the following best represents the formula for before-tax yield (Ybt)? Assume
that T represents tha tax rate and Yat represents the after-tax yield.
Ybt = Yat(1 + T)
Ybt = Yat(1 - T)
Ybt = Yat/(1 - T)
Ybt = Yat + (1 - T)
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Chapter 3 Overview Video Quiz

  1. Which of the following is true of credit ratings on debt securities? Credit ratings are fixed and cannot not change over time. Credit rating agencies are regulated by the SEC. Credit ratings are not available for most debt securities. Credit ratings are objective facts, not opinions. 2.Which of the following is true regarding liquidity? All else equal, a security with lower liquidity must offer a lower yield to attract investors. All else equal, investors prefer securties with less liquidity. All else equal, a security with lower liquidity must offer a higher yield to attract investors. All else equal, a security with higher liquidity must offer a higher yield to attract investors. 3.Which of the following is true regarding the tax status of debt securities? All else equal, taxable securities must offer a higher before-tax yield than tax-exempt securities. Investors in lower tax brackets benefit the most from tax-exempt securities. All else equal, tax-exempt securities must offer a higher before-tax yield than taxable securities. Investors care more about before-tax income from securities than they do about after-tax income from securities. 4.Which of the following best represents the formula for after-tax yield (Yat)? Assume that T represents tha tax rate and Ybt represents the before-tax yield. Yat = Ybt(1 + T) Yat = Ybt/(1 - T) Yat = Ybt(1 - T) Yat = Ybt + (1 - T) 5.Which of the following best represents the formula for before-tax yield (Ybt)? Assume that T represents tha tax rate and Yat represents the after-tax yield. Ybt = Yat(1 + T) Ybt = Yat(1 - T) Ybt = Yat/(1 - T) Ybt = Yat + (1 - T)

6.Given credit risk premium CP, annualized yield on an n-year, risk-free treasury security Rf,n, liquidity premium LP, and tax status adjustment TA, which of the following best represents the model for the annualized yield of an n-year debt-security (Yn)? Yn = Rf,n x CP x LP x TA Yn = Rf,n - CP - LP + TA Yn = Rf,n - (CP + LP + TA) Yn = Rf,n + CP + LP + TA 7.According to pure expectations theory, which of the following will result from an expected increase in interest rates? Short-term yields will decrease, while long-term yields will increase. Yields in both short-term and long-term markets will decrease. Yields in both short-term and long-term markets will increase. Short-term yields will increase, while long-term yields will decrease. 8.According to pure expectations theory, which of the following will result from an expected decrease in interest rates? Short-term yields will increase, while long-term yields will decrease. Yields in both short-term and long-term markets will increase. Yields in both short-term and long-term markets will decrease. Short-term yields will decrease, while long-term yields will increase.

  1. Which of the following is consistent with liquidity premium theory? Longer maturities represent greater liquidity. Investors prefer the increased liquidity of long-term securities. Shorter maturities represent less liqiudity. The preference for liquidity offered by short-term securities puts upward pressure on the slope of the yield curve.
  2. Which of the following is consistent with segmented markets theory? Investors with short-term liabilities will prefer long-term investments. Investors with long-term liabilities will prefer short-term investments. Investors with short-term liabilities will prefer less liquid investments. Investors with long-term liabilities will prefer long-term investments.