Question

I'm having difficulty understanding these questions. I would appreciate the answer with an explanation, thank you !

Question 1

A one-year discount bond issued by X has a payout of $550 and today's price is $510. A one-year discount bond issued by Y has a payout of $1,290 and today's price is $1,155. Then the bond issued by X has a ____ yield than the bond issued by Y, and this could be because X has a ____ default risk

higher, lower

lower, lower

lower higher

higher, higher

Question 2

Suppose there is a decrease in the liquidity of corporate bonds relative to US Treasury bonds. Consequently, the demand curve for U.S. Treasury bonds will shift to the ____ and the demand curve for Corporate bonds will shift to the ____.  

left, right

right, right

left, left

right, left

Question 3

Assume that the default risk for corporate bonds decreases, relative US Treasury bonds. In this case, the equilibrium price for corporate bonds should ____ and the equilibrium price for US Treasury bonds should ____.

rise, rise

rise, fall

fall, rise

fall, fall

Question 4

Analysts predict that short-term interest rates over the next 4 years will be as follows: 3%, 12%, 10%, and 5%, respectively. According to expectations theory, the yield on a discount bond with a three year maturity will be ____ the yield on bond with a four year maturity.

lower than

higher than

the same as

none of the above

Question 5

Consider the same short-term interest rates as in problem 4 above. If the yield on a discount bond that matures in 4 years is 8.25%, then according to liquidity premium theory, the premium attached to the 4 year discount bond is

0.25%

0.75%

1.25%

1.50%

Answer 1