Using R to Represent an Average Interest Rate Is

question 19

Multiple Choice

Using R to represent an average interest rate is

• A) an acceptable practice in the short run, because all interest rates on many different types of securities tend to move up and down together.
• B) a questionable practice in the short run, because securities with different risks pay different returns.
• C) a questionable practice in the long run, because term structure variations between short- and longer-term rates can be important.
• D) an acceptable practice in the long run, because short- and long-term rates on most securities tend to move in tandem.
• E) a and c.

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Definitions:

Consistent

In mathematics, it refers to a system of equations that has at least one solution; in a general context, it means steady or continually the same.

Graphical Method

A technique for solving mathematical problems by drawing graphs to visualize relationships between variables.

Equations

Mathematical statements that assert the equality of two expressions, typically including one or more variables.

Substitution

A method for solving systems of equations where one of the equations is solved for one variable in terms of others, and that expression is substituted into the other equation(s).