According to the Preferred Habitat Theory, the Yield Curve Normally

question 27

Multiple Choice

According to the preferred habitat theory, the yield curve normally has a positive slope because

• A)short-term interest rates are expected to rise.
• B)term premiums rise as the time to maturity increases.
• C)risk premiums rise over time.
• D)long-term bonds are more liquid than short-term bonds.

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Definitions:

Cash Settlement

The provision of some futures contracts that requires not delivery of the underlying assets but settlement according to the cash value of the asset.

Stock Index Futures

Financial contracts that obligate the buyer to purchase or the seller to sell a stock index at a predetermined price on a specified future date.

Delivery

The process of transporting goods from a seller to the purchaser's designated location, or the act of fulfilling an obligation or promise.

Long Position

A financial strategy where the investor purchases a security with the expectation that its value will rise over time.