If the Pure Expectations Theory of the Term Structure Is

question 4

Multiple Choice

If the pure expectations theory of the term structure is correct,which of the following statements would be CORRECT?

• A) An upward-sloping yield curve would imply that interest rates are expected to be lower in the future.
• B) If a 1-year Treasury bill has a yield to maturity of 7% and a 2-year Treasury bill has a yield to maturity of 8%,this would imply the market believes that 1-year rates will be 7.5% one year from now.
• C) The yield on a 5-year corporate bond should always exceed the yield on a 3-year Treasury bond.
• D) Interest rate (price)risk is higher on long-term bonds,but reinvestment rate risk is higher on short-term bonds.
• E) Interest rate (price)risk is higher on short-term bonds,but reinvestment rate risk is higher on long-term bonds.

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Definitions:

Retina

The light-sensitive layer of tissue at the back of the inner eye that converts light images into electrical signals sent to the brain.

Stroboscopic Motion

Is perceived motion created by the presentation of a series of still images in rapid succession, illustrating how motion is perceived in film and animation.

Movie Effect

The influence that watching movies or other multimedia content can have on a person's emotions, behavior, attitudes, or perceptions.

Eardrum Vibration

The movement of the eardrum in response to sound waves, crucial for the hearing process.