If Investors Expect Higher Future Interest Rates,the Yield Curve Generated

question 4

Multiple Choice

If investors expect higher future interest rates,the yield curve generated by the liquidity premium theory is ______ and ____________than the yield curve implied by the expectations theory.

• A)ascending; steeper
• B)ascending; flatter
• C)descending; steeper
• D)descending; flatter

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Definitions:

Payoff

The return or outcome received from an investment or decision, often used in context of financial transactions and game theory.

Risky Undertaking

An action or project that involves a high degree of uncertainty or danger regarding its outcome or success.

Expected Value

A calculation in probability and statistics that shows what to predict as the outcome on average over many trials.

Investment

The allocation of resources, typically money, with the expectation of generating an income or profit.