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:

Price-Earnings Ratio

A valuation metric for a company, calculated as its current share price divided by its per-share earnings.

Market Price per Share

The current price at which a company's shares are being traded on the stock market.

Unusual Items

Financial events that are not typical for the normal business operations and are unlikely to recur, affecting a company's financial statements.

Accounting Principles

Fundamental guidelines or rules that underpin the process of accounting, including concepts like the matching principle, revenue recognition, and historical cost.