The Theory of the Term Structure of Interest Rates, Which

question 58

Multiple Choice

The theory of the term structure of interest rates, which suggests that long-term rates are determined by the average of short-term rates expected over the time that a long-term bond is outstanding, is the

• A) expectations hypothesis.
• B) segmentation theory.
• C) liquidity premium theory.
• D) market average rate theory.

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Definitions:

Agency Relationship

A legal bond where one party, the agent, acts on behalf of another party, the principal, in a business transaction.

Irrevocable

Something that cannot be changed, reversed, or undone, typically referring to certain contracts, trusts, or agreements.

Coupled With An Interest

A right or benefit that cannot be taken away because it is legally attached to another property or contractual right.

Agency Agreement

A legal contract creating a fiduciary relationship wherein the first party ("the principal") agrees that the actions of a second party ("the agent") binds the principal to later agreements made by the agent as if the principal had himself personally made the later agreements.