The Expectations Theory of the Term Structure Asserts That

question 49

Multiple Choice

The expectations theory of the term structure asserts that

• A)short-term interest rates are always lower than long-term interest rates, since they have less risk
• B)long-term interest rates are always higher than short-term interest rates because you should always expect some inflation
• C)long-term interest rates are determined by the average of the current and future short-term interest rates
• D)the lower the liquidity of a security, the higher the yield it has to pay to attract financial investors
• E)foreign securities often have to pay a risk premium to compensate for exchange rate uncertainties

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