1.Changes in all of the following have been identified as one of the three factors that explain historical Treasury returns EXCEPT the:

A)   level of interest rates.

B)   slope of the yield curve.

C)   curvature of the yield curve.

D)   default risk premium.

2.Research studies have identified three factors that explain historical Treasury returns. Which of the following is the factor with the most explanatory power? Changes in the:

A)   default risk premium.

B)   slope of the yield curve.

C)   level of interest rates.

D)   curvature of the yield curve.

3.Change in which of the following is NOT a factor that has been observed to drive Treasury returns?

A)   The level of interest rates.

B)   The coupon of Treasury securities.

C)   The slope of the yield curve.

D)   The curvature of the yield curve.

4.Change in the which of the following factors has been observed to be the most important driving force for Treasury returns?

A)   Slope of the yield curve.

B)   Curvature of the yield curve.

C)   Level of interest rates.

D)   Coupon of Treasury securities.

1.Changes in all of the following have been identified as one of the three factors that explain historical Treasury returns EXCEPT the:

A)   level of interest rates.

B)   slope of the yield curve.

C)   curvature of the yield curve.

D)   default risk premium.

The correct answer was D)

Default risk is not relevant for Treasury securities. Research has identified the other three answers as explaining over 95% of the changes in Treasury returns.

2.Research studies have identified three factors that explain historical Treasury returns. Which of the following is the factor with the most explanatory power? Changes in the:

A)   default risk premium.

B)   slope of the yield curve.

C)   level of interest rates.

D)   curvature of the yield curve.

The correct answer was C)

Default risk is not relevant for Treasury securities. Research has identified the other three answers as explaining over 95 percent of the changes in Treasury returns. Changes in the level of interest rates accounts for almost 90 percent of the observed variation in total returns.

3.Change in which of the following is NOT a factor that has been observed to drive Treasury returns?

A)   The level of interest rates.

B)   The coupon of Treasury securities.

C)   The slope of the yield curve.

D)   The curvature of the yield curve.

The correct answer was B)

The coupon for Treasury securities is constant.

4.Change in the which of the following factors has been observed to be the most important driving force for Treasury returns?

A)   Slope of the yield curve.

B)   Curvature of the yield curve.

C)   Level of interest rates.

D)   Coupon of Treasury securities.

The correct answer was C)

In regressions, changes in the level of the interest rate have been shown to explain about 90% of the Treasury return variance.