Assuming That the Term Structure of Interest Rates Is Determined

question 17

Multiple Choice

Assuming that the term structure of interest rates is determined as posited by the pure expectations theory,which of the following statements is CORRECT?

• A) In equilibrium,long-term rates must be equal to short-term rates.
• B) An upward-sloping yield curve implies that future short-term rates are expected to decline.
• C) The maturity risk premium is assumed to be zero.
• D) Inflation is expected to be zero.
• E) Consumer prices as measured by an index of inflation are expected to rise at a constant rate.

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Definitions:

Lead Time

The time span between the initiation and completion of a process, such as the ordering of goods and their delivery.

Bill of Material

A comprehensive list detailing all the components, materials, and parts required to manufacture a product, including quantities and specifications.

Inventory

An accounting term referring to the goods and materials held by a business for the purpose of resale or production.

Lot-For-Lot

An ordering system where the exact quantity needed for production is ordered, minimizing inventory holding costs.