If Issuers of Securities (Borrowers)and Investors Suddenly Expect Interest Rates

question 66

Multiple Choice

If issuers of securities (borrowers) and investors suddenly expect interest rates to decrease, their actions to benefit from their expectations should cause

• A)long-term yields to rise.
• B)short-term yields to decrease.
• C)prices of long-term securities to decrease.
• D)long-term yields to rise AND short-term yields to decrease.
• E)None of these are correct.

---

Definitions:

CDOs

Abbreviation for Collateralized Debt Obligations, a type of structured asset-backed security with multiple tranches.

Securities

Financial instruments that represent an ownership position in a publicly-traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), or rights to ownership such as options.

Negative Amortization

A situation in a loan where the monthly payments are not enough to cover the interest costs, causing the loan balance to increase rather than decrease over time.

Commission

A service fee charged by a broker or agent for facilitating transactions, such as in stocks or real estate.