To Account for Risk in the Expectations Theory of the Term

question 69

Multiple Choice

To account for risk in the expectations theory of the term structure, we:

• A)set the period rate equal to the risk premium.
• B)add a risk premium to the current period's 1-year interest rate.
• C)add a risk premium to the average of the current one-period rate and expected rates over the next periods.
• D)divide the average of the current one-period rate and expected rates over the next periods by a risk premium.