Which Theory of Term Structure States That Long-Term Rates Are

question 97

Multiple Choice

Which theory of term structure states that long-term rates are equal to the geometric average of current and expected short-term rates plus a risk premium that increases with the maturity of the security?

• A)The unbiased expectations theory.
• B)The liquidity premium theory.
• C)The loanable funds theory.
• D)The market segmentation theory.
• E)None of the options.

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Definitions:

Escalating Commitment

A behavior pattern in which an individual or group continues to follow a failing course of action based on the time, money, or resources already invested.

Strategic Opportunism

The ability to remain flexible and seize new opportunities while still maintaining a focus on long-term strategic goals.

Anchoring and Adjustment Bias

A cognitive bias where an individual relies too heavily on an initial piece of information (anchor) when making decisions, even if it is unrelated or irrelevant.

Availability Bias

A cognitive bias where people overestimate the importance of information that is readily available to them.