Under the Expectations Hypothesis, Bonds of Different Maturities Are Assumed

question 62

Multiple Choice

Under the expectations hypothesis, bonds of different maturities are assumed to be perfect substitutes because:

• A) the risk premium is assumed to be negative.
• B) market forces would always have long-term interest rates equal the average of the current and expected short-term rate.
• C) expectations of future interest rates are uncertain and therefore cannot be included in the analysis.
• D) bond markets are very liquid.

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Definitions:

Stamp Act

A 1765 British law imposing a tax on the colonies requiring them to pay a stamp duty on documents, newspapers, and playing cards, leading to widespread protest.

Stamp Act

A law enacted by the British Parliament in 1765 requiring the use of stamped paper for legal documents, newspapers, and playing cards in the American colonies, which was a direct tax that provoked colonial opposition.

Age of Revolution

A period from approximately 1774 to 1849 during which numerous significant revolutions occurred across the globe, including the American, French, and Industrial Revolutions.