Finance 15 Chapter 7 Risk

Bonds that are rated Baa or better by Moody’s (or rated as BBB or better by Standard & Poor’s) are referred to as: investment grade
Bonds that were initially released as investment grade, but were later reclassified as junk bonds are known as: fallen angels
Commercial paper is: a short term loan issued on a discount basis
The default-risk premium on a bond equals the: difference between the expected return on the bond and the U.S. Treasury yeild
Economic theory and Empirical evidence indicate that: All are correct-the interest rate are higher on bonds that are riskier -interest rate on all categories of bonds are likely to move together over time-long term bonds are riskier than short term bonds and interest rates are generally higher on long-term bonds
Yield curves are generally: upward sloping
Long-term bonds generally provide lower interest rates than do short-term bonds false
Under the expectation hypothesis, if people expect interest rates to be stable over time, yield curves would be: horizontal (flat-line)
The expectation hypothesis explains why: interest rates move together for bonds of different maturities.

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