Reading 65: Understanding Yield Spreads - LOS c, (Part 1)

答案和详解如下：

1.Which of the following statements regarding the different theories of the term structure of interest rates is FALSE?

A)   The preferred habitat theory can be described as investors that prefer to stay within a particular maturity range of the yield curve regardless of yields in other maturity ranges.

B)   The market segmentation theory, pure expectations theory, preferred habitat theory, and liquidity preference theory are all consistent with any shape of the yield curve.

C)   An upward sloping yield curve can be consistent with the liquidity preference theory even with expectations of declining short term interest rates.

D)   With the market segmentation theory the shape of the yield curve is determined by the supply and demand of bonds at various maturities.

The correct answer was A)

The preferred habitat theory states that investors will move from their preferred maturity on the yield curve to another area on the yield curve to achieve higher yields. With the liquidity preference theory the yield curve can remain upward sloping even if short term rates are predicted to decline as long as the liquidity premium is sufficiently large. With the market segmentation theory the supply of bonds and demand for bonds at various maturities determine their yields and the resulting yield curve.

2.The term structure theory that rests on the interaction of supply and demand forces in the debt market is the:

A)   GIC inverse term structure theory.

B)   expectation hypothesis.

C)   bootstrap theory of sliding rates.

D)   market segmentation theory.

The correct answer was D)

The market segmentation theory holds that the market is segmented into different parts based on the maturity preferences of investors. The theory also holds that the supply and demand forces at work within each segment determine the prevailing level of interest rates for that part of the market.

3.According to the expectations hypothesis, investors’ expectations of decreasing inflation will result in:

A)   a downward-sloping yield curve.

B)   an upward-sloping yield curve.

C)   a flat yield curve.

D)   a humped yield curve.

The correct answer was A)

The expectations hypothesis holds that the shape of the yield curve reflects investor expectations about the future behavior of inflation and market interest rates. Thus, if investors believe inflation will be slowing down in the future, they will require lower long-term rates today and, therefore, the yield curve will be downward-sloping.

4.The liquidity preference theory holds that:

A)   rational investors should show no preferences for either short- or long-term debt securities.

B)   the yield curve should be upward-sloping.

C)   cash should be preferred to Treasury securities because it is more liquid.

D)   because they are so marketable, there is a liquidity premium that normally has to be paid to invest in short-term debt securities.

The correct answer was B)

The liquidity preference theory definitely has an upward-sloping bias with regard to the shape of the yield curve. That is because it holds that investors generally prefer the greater liquidity and reduced risk that accompanies short-term securities and, as a result, require a premium (higher yields) to get them to invest in longer-term securities.

5.An analyst forecasts that spot interest rates will increase more than the increase implied by the current forward interest rates. Under these circumstances:

A)   the analyst should establish a bearish bond portfolio.

B)   all bond positions earn the same return.

C)   the analyst should establish a bullish bond portfolio.

D)   the realized return on any portfolio is the risk free rate.

The correct answer was A)

Bond prices fall with a rise in interest rates. If realized rates rise more than the associated forward rate implied, then a bearish bond position will be the most beneficial.