Reading 64: Understanding Yield Spreads-LOS f 习题精选 2011, following, relation, discuss, between

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Session 15: Fixed Income: Basic Concepts
Reading 64: Understanding Yield Spreads

LOS f: Describe a credit spread and discuss the suggested relation between credit spreads and the well-being of the economy.

 

 

Which of the following is the reason why credit spreads between high quality bonds and low quality bonds widen during poor economic conditions?

A) default risk.

B) indenture provisions.

C) interest risk.

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During poor economic conditions the probability of default increases and thus credit spreads widen.

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If a U.S. investor is forecasting that the yield spread between U.S. Treasury bonds and U.S. corporate bonds is going to widen, then which of the following is most likely to be CORRECT?

A) The economy is going to expand.

B) The economy is going to contract.

C) The U.S. dollar will weaken.

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If economic conditions are expected to get worse, then the probability that corporations may default increases and causes credit spreads to widen.

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If investors expect greater uncertainty in the bond markets, you should see yield spreads between AAA and B rates bonds:

A) slope downward.

B) widen.

C) narrow.

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With greater uncertainty, investors require a higher return for taking on more risk. Therefore credit spreads will widen.

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Which of the following is the most appropriate strategy for a fixed income portfolio manager under the anticipation of an economic expansion?

A) Purchase corporate bonds and sell Treasury bonds.

B) Sell corporate bonds and purchase Treasury bonds.

C) Sell lower-rated corporate bonds and buy higher-rated corporate bonds.

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During periods of economic expansion corporate yield spreads generally narrow, reflecting decreased credit risk. If yield spreads narrow, the prices of corporate bonds increase relative to the prices of Treasuries. Selling lower-rated bonds and buying higher-rated bonds is an appropriate strategy if an economic contraction is anticipated.