3. The relationship between \"yield\" on securities (eg: bonds) and their respec

Question

3. The relationship between "yield" on securities (eg: bonds) and their respective "maturity" is know as the and is graphically illustrated by a A. Required Rate of Return (RRR)... Securities Market Line (SML Equation) B. Nominal/Stated/Quoted Interest Rate...Yield Curve C. Term Structure of Interest Rates...Yield Curve D. Expected Rate of Return... Probability Distribution Yield Curve Graph 4. If the "risk free rate" & the various "market premiums" (eg: default/credit, liquidity, inflation, market, & maturity) are expected to gradually increase over the next 3-5 years, the "slope of the Yield Curve" will be sloping. Which of the "market premiums" is most important: A. upward (or positively sloping or a "normal Yield Curve")... inflation B. flat (no slope at all... no change would be expected)... liquidity C. downward (or negatively sloping or an "inverted Yield Curve")... default/credit D. upward (for years 1-3) then downward (for years 3-5)... market 5. A good approximation of the long-term "risk free (interest) rate" is the yield/rate on a A good approximation of the short-term "risk free (interest) rate" is the yield/rate on a A. Federal Funds Rate...Discount Rate B. 10-Year U.S. Treasury Bond...90-Day U.S. Treasury Bill C. 30-Year U.S. Treasury Bond...30-Day U.S. Treasury Bill D. Prime Rate Bank Loan (interest rate banks charge their best/prime borrowers), for both. 6. Let's say you are actively managing your own 401K Plan. You have several U.S. stock funds, a U.S corporate bond fund, a money market fund, and a couple international stock funds to choose from when allocating your funds. At what point might you switch your fund allocations from stock funds to bond funds? A. When the S&P; 500 is as low as you expect it to go for awhile & the "Fed" is worried about inflation B. When the S&P; 500 is as high as you expect it to go for awhile & Fiscal Policy suggests deficit spending. When the S&P; 500 is as high as you expect it to go for awhile & market interest rates have probably peaked for awhile due to the "Fed" believing that inflation is "under control" C. D. When the U.S. Government stops its "deficit spending" & "war-mongering behavior"

Explanation / Answer

3)

Term structure of interest rates is information, which specifies the yield of the security against their maturity period. Yield increases with increase with increase in maturity period. Graphical representation is yield curve.

Hence, correct option (C).

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