The Implication of the Expectations Theory That Expected Returns for a Holding

question 72

Multiple Choice

The implication of the expectations theory that expected returns for a holding period must be the same for bonds of different maturities depends on the assumption that

• A)yield curves usually slope upward.
• B)yield curves usually slope downward.
• C)instruments with different maturities are perfect substitutes.
• D)savers are usually risk averse.

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Definitions:

Coefficient Of Determination

A measure used in statistical analysis to assess the goodness of fit of a model, represented as the proportion of variance in the dependent variable that is predictable from the independent variable(s).

Pearson Correlation Coefficient

A measure of the linear correlation between two variables X and Y, giving a value between -1 and 1 which indicates the strength and direction of the correlation.

Sum Of Squares

A statistical measure that quantifies the variation within a set of numbers, calculated as the sum of the squared differences from the mean.

Least Squares Estimates

The estimates of the parameters in a regression model obtained by minimizing the sum of squared differences between observed and predicted values.