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Suppose that a firm is facing an upward-sloping yield curve:

A. Yes, using short term financing will give the firm the lowest possible interest rate over the life of the project.

B. No, the firm needs to take the volitility of short term rates into account.

C. No, an upward sloping yield curve means that the firm will get a lower interest rate if it uses long term financing.

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Alice Sejake
Alice SejakeLv10
25 Mar 2021

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Related questions

5. Plots of the yield curve can be useful for: a. Predicting the future course of inflation b. Predicting the future trends in international trade c. Predicting the future course of interest rates d. Prediction the future policy actions of the Federal Reserve System

6. An upward sloping yield curve means that, a. Short-term interest rates are expected to fall, so that long-term interest rates will be higher than short-term interest b. Short-term interest rates are expected to rise, so that short-term interest rates will be higher than long-term interest c. Short-term interest rates are expected to rise, so that long-term interest rates will be higher than short-term interest d. Short-term interest rates are expected to fall, so that short-term interest rates will be lower than long-term interest

7. Which of the following is NOT a stylized fact about the yield curve. a. The yield curve is generally upward sloping b. The yield curve is generally downward sloping c. The yield curve tends to shift over time d. The yield curve tends tend to predict future economic activity

8. If the Expectations Hypothesis holds true about long-term and short-term bonds being substitutes, then if the U.S. government decides to issue a large stock of long-term bonds, we could expect, a. The yield curve to become steeper b. The yield curve to become flatter c. The yield curve to shift down d. The yield curve to shift up

9. Suppose that businesses believe that the economy is about to expand, then we could expect, a. The yield curve to become steeper b. The yield curve to become flatter c. The yield curve to shift down d. The yield curve to shift up

10. Empirical evidence in US shows that when the spread between long term bonds and short-term bonds is negative (that is: the yield curve slopes downward or is inverted) then __________ is highly possible. a. Higher inflation b. Lower inflation c. A recession d. An economic expansion

11. According to the pure expectations theory of term structure, a flat yield curve is interpreted to mean that, a. Interest rates are expected to rise b. Interest rates are expected to fall c. Interest rates are expected to remain constant d. Interest rates are expected to rise and then to fall e. None of the above

12. Yield curves can be classified as: a. Upward sloping b. Downward sloping c. Flat d. All of the above e. Only (a) and (b)

13. Yield curves can be: a. Steeply upward sloping b. Moderately upward sloping c. Downward sloping d. All of the above e. Only (a) and (b)

14. Typically, yield curves are: a. Gently upward sloping b. Gently downward sloping c. Flat d. Bowl shaped e. Mound shaped

15. When yield curves are steeply upward sloping, a. Long-term interest rates are above short-term interest rates b. Short-term interest rates are above long-term interest rates c. Short-term interest rates are about the same as long-term interest rates d. Medium-term interest rates are above both short-term and long-term interest rates e. Medium-term interest rates are below both short-term and long-term interest rates

16. An inverted yield curve: a. Slopes up b. Is flat c. Slopes down d. Has a U shape e. Has an inverted U shape

17. According to the expectations theory of the term structure, a. The interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds b. Buyers of bonds do not prefer bonds of one maturity over another c. Interest rates on bonds of different maturities move together over time d. All of the above e. Only (a) and (b)

18. According to the expectations theory of the term structure, a. The interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds b. Interest rates on bonds of different maturities move together over time c. Buyers of bonds prefer short-term to long-term bonds d. All of the above e. Only (a) and (b)

19. According to the expectations theory of the term structure, a. When the yield curve is steeply upward sloping, short-term interest rates are expected to rise in the future b. When the yield curve is downward sloping, short-term interest rates are expected to decline in the future c. Buyers of bonds do not prefer bonds of one maturity over another d. All of the above e. Only (a) and (b)

20. According to the expectations theory of the term structure, a. When the yield curve is steeply upward sloping, short-term interest rates are expected to rise in the future b. When the yield curve is downward sloping, short-term interest rates are expected to decline in the future c. Investors have strong preferences for short-term relative to long-term bonds, explaining why yield curves typically slope upward d. All of the above e. Only (a) and (b)

21. According to the expectations theory of the term structure, a. When the yield curve is steeply upward sloping, short-term interest rates are expected to rise in the future b. When the yield curve is downward sloping, short-term interest rates are expected to decline in the future c. Yield curves should be as equally likely to slope downward as slope upward d. All of the above e. Only (a) and (b)

22. According to the expectations theory of the term structure, a. The interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds b. Buyers of bonds do not prefer bonds of one maturity over another c. Yield curves should be as equally likely to slope downward as slope upward d. All of the above e. Only (a) and (b)

23. According to the expectations theory of the term structure, a. The interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds b. Buyers of bonds do prefer short-term to long-term bonds c. Interest rates on bonds of different maturities do not move together over time d. All of the above

24. Assume that over the next two years, the expected path of 1-year interest rates is 4 percent and 1 percent. The expectations theory of the term structure predicts that the current interest rate on 2-year bond is: a. 1% b. 1.5% c. 2% d. 2.5% e. 4%

25. Assume that over the next two years, the expected path of 1-year interest rates is 1 percent and 4 percent. The expectations theory of the term structure predicts that the current interest rate on 2-year bond is: a. 1% b. 1.5% c. 2% d. 2.5% e. 4%

26. Assume that the current 1-year interest rate is 3 percent and the current 2-year interest rate is 2 percent. The expectations theory of the term structure predicts that the interest rate expected on 1-year bonds next year is: a. 1% b. 1.5% c. 2% d. 2.5% e. 4%

16. An inverted yield curve: a. Slopes up b. Is flat c. Slopes down d. Has a U shape e. Has an inverted U shape

17. According to the expectations theory of the term structure, a. The interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds b. Buyers of bonds do not prefer bonds of one maturity over another c. Interest rates on bonds of different maturities move together over time d. All of the above e. Only (a) and (b)

18. According to the expectations theory of the term structure, a. The interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds b. Interest rates on bonds of different maturities move together over time c. Buyers of bonds prefer short-term to long-term bonds d. All of the above e. Only (a) and (b)

19. According to the expectations theory of the term structure, a. When the yield curve is steeply upward sloping, short-term interest rates are expected to rise in the future b. When the yield curve is downward sloping, short-term interest rates are expected to decline in the future c. Buyers of bonds do not prefer bonds of one maturity over another d. All of the above e. Only (a) and (b)

20. According to the expectations theory of the term structure, a. When the yield curve is steeply upward sloping, short-term interest rates are expected to rise in the future b. When the yield curve is downward sloping, short-term interest rates are expected to decline in the future c. Investors have strong preferences for short-term relative to long-term bonds, explaining why yield curves typically slope upward d. All of the above e. Only (a) and (b)

True/False

Indicate whether the sentence or statement is true or false.

____ 1. The average fixed cost curve increases as output increases over a relevant range of production.

____ 2. Average revenue is slightly higher than price.

____ 3. Marginal cost curves and average cost curves are both purely upward sloping.

____ 4. A firm that sells at a price below average cost is not making a normal profit.

____ 5. In the short run, it is possible for a perfectly competitive firm to make economic profits or economic losses.

____ 6. If a firm sells its output at a price greater than AC, it will earn economic profit.

____ 7. Zero profit in the economic sense means that firms are earning a normal rate of return.

____ 8. In a free market (laissez-faire) system, the price mechanism dictates the production planning (how to produce) decisions.

____ 9. Free markets produce relatively high levels of efficiency but low rates of growth.

____ 10. A natural monopoly occurs when a single firm can produce the entire output of the market at a lower average cost than could many firms.

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