BFIN Exam 2 Study Guide | Business Finance Practice Questions & Review Notes
2026
Which of the following is true?
a. Corporate yield curves are lower than that of Treasury securities.
b. Corporate yield curves are parallel to the treasury curve.
c. The spread between corporate and Treasury yield curves widens as the corporate bond get
riskier.
d. Corporate yield curves cannot be downward sloping.
e. None of the above - ANS ✔✔c. The spread between corporate and Treasury yield curves
widens as the corporate bond get riskier.
If the Treasury yield curve is downward sloping, how should the yield to maturity on a 10-year
Treasury coupon bond compare to that on a 1-year T-bill? - ANS ✔✔The yield on a 10-year bond
would be less than that on a 1-year bill.
For which type of investment will the maturity risk premium matter the most - ANS ✔✔30-year
US treasury bond
Assume the following: The real risk-free rate, r*, is expected to remain constant at 3%. Inflation
is expected to be 3% next year and then to be constant at 2% a year thereafter. The maturity
risk premium is zero. Given this information, what could be stated? - ANS ✔✔This problem
assumed a zero maturity risk premium, but that is probably not valid in the real world.
The real risk-free rate is expected to remain constant at 3% in the future, a 2% rate of inflation is
expected for the next 2 years, after which inflation is expected to increase to 4%, and there is a
positive maturity risk premium that increases with years to maturity. Given these conditions,
what could be stated - ANS ✔✔The yield on a 5-year Treasury bond must exceed that on a 2-
year Treasury bond.
, Which would likely cause overall interest rates to go down in the United States? - ANS ✔✔The
European Central Bank announces it will decrease its target interest rates
What investment is mostly likely to be risk-free? - ANS ✔✔short-term US treasury bills
what is true about long-term and short-term bonds - ANS ✔✔Reinvestment rate risk is lower,
other things held constant, on long-term than on short-term bonds.
T or F: The federal reserve has no impact on interest rates - ANS ✔✔false
Two stocks (A & B) have a positive correlation. What is most likely to be true? - ANS ✔✔when
stock A goes up, stock B is likely to go up as well
Assume that interest rates on 20-year Treasury and corporate bonds are as follows:
T-bond = 7.72% AAA = 8.72% A = 9.64% BBB = 10.18%
The differences in these rates were probably caused primarily by: - ANS ✔✔Default and liquidity
risk differences
What is true of the bond market - ANS ✔✔there is no central, organized bon exchange
Blue Pirate is a AA rated company, and Orange Sails is a BB rated company. What is most likely
true - ANS ✔✔Blue Pirate's bonds are considered investment grade, but Orange Sails' bonds are
considered speculative grade
Yesterday, a certain 5% coupon bond was trading with a yield-to-maturity of 5.1%. Today, the
yield-to-maturity is 4.9%. What is most likely true? - ANS ✔✔Yesterday the bond was trading for
less than $1,000, but today it is trading for more than $1,000
2026
Which of the following is true?
a. Corporate yield curves are lower than that of Treasury securities.
b. Corporate yield curves are parallel to the treasury curve.
c. The spread between corporate and Treasury yield curves widens as the corporate bond get
riskier.
d. Corporate yield curves cannot be downward sloping.
e. None of the above - ANS ✔✔c. The spread between corporate and Treasury yield curves
widens as the corporate bond get riskier.
If the Treasury yield curve is downward sloping, how should the yield to maturity on a 10-year
Treasury coupon bond compare to that on a 1-year T-bill? - ANS ✔✔The yield on a 10-year bond
would be less than that on a 1-year bill.
For which type of investment will the maturity risk premium matter the most - ANS ✔✔30-year
US treasury bond
Assume the following: The real risk-free rate, r*, is expected to remain constant at 3%. Inflation
is expected to be 3% next year and then to be constant at 2% a year thereafter. The maturity
risk premium is zero. Given this information, what could be stated? - ANS ✔✔This problem
assumed a zero maturity risk premium, but that is probably not valid in the real world.
The real risk-free rate is expected to remain constant at 3% in the future, a 2% rate of inflation is
expected for the next 2 years, after which inflation is expected to increase to 4%, and there is a
positive maturity risk premium that increases with years to maturity. Given these conditions,
what could be stated - ANS ✔✔The yield on a 5-year Treasury bond must exceed that on a 2-
year Treasury bond.
, Which would likely cause overall interest rates to go down in the United States? - ANS ✔✔The
European Central Bank announces it will decrease its target interest rates
What investment is mostly likely to be risk-free? - ANS ✔✔short-term US treasury bills
what is true about long-term and short-term bonds - ANS ✔✔Reinvestment rate risk is lower,
other things held constant, on long-term than on short-term bonds.
T or F: The federal reserve has no impact on interest rates - ANS ✔✔false
Two stocks (A & B) have a positive correlation. What is most likely to be true? - ANS ✔✔when
stock A goes up, stock B is likely to go up as well
Assume that interest rates on 20-year Treasury and corporate bonds are as follows:
T-bond = 7.72% AAA = 8.72% A = 9.64% BBB = 10.18%
The differences in these rates were probably caused primarily by: - ANS ✔✔Default and liquidity
risk differences
What is true of the bond market - ANS ✔✔there is no central, organized bon exchange
Blue Pirate is a AA rated company, and Orange Sails is a BB rated company. What is most likely
true - ANS ✔✔Blue Pirate's bonds are considered investment grade, but Orange Sails' bonds are
considered speculative grade
Yesterday, a certain 5% coupon bond was trading with a yield-to-maturity of 5.1%. Today, the
yield-to-maturity is 4.9%. What is most likely true? - ANS ✔✔Yesterday the bond was trading for
less than $1,000, but today it is trading for more than $1,000
