Which of the Following Statements Is Correct Concerning the Term

question 111

Multiple Choice

Which of the following statements is correct concerning the term structure of interest rates?
I.Expectations of lower inflation rates in the future tend to lower the slope of the term structure of interest rates.
II.The term structure of interest rates includes both an inflation premium and an interest rate risk premium.
III.The real rate of return has minimal,if any,affect on the slope of the term structure of interest rates.
IV.The term structure of interest rates and the time to maturity are always directly related.

• A)I and II only
• B)II and IV only
• C)I, II, and III only
• D)II, III, and IV only
• E)I, II, and IV only

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Definitions:

Interest Rate

The fraction of a loan incurred as interest by the borrower, commonly indicated as a yearly percentage.

Grandchildren

The children of one's children, forming the third generation in a family lineage.

Future Value Factor

A factor used to calculate the future value of a cash flow at a certain rate of interest over a specific number of periods.

Interest Rate

is the percentage of principal charged by the lender for the use of its money or the return earned on deposit accounts.