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:

Discontinued Operations

Parts of a company's business that have been sold or otherwise disposed of, with their financial results reported separately from ongoing operations.

Cost of Goods Sold

The immediate expenses linked to the creation of a company's sold products, encompassing both the costs of materials and labor.

Net Sales

Total revenue from sales of goods or services, less returns, allowances for damaged goods, and discounts.

Operating Expense

Expenses incurred during normal business operations, such as rent, utilities, and payroll, excluding costs associated with the production of goods sold.