The Theory for the Term Structure of Interest Rates That

question 80

Multiple Choice

The theory for the term structure of interest rates that says the shape of the yield curve is determined solely by expectations of future interest rates is called the

• A)segmented markets theory.
• B)liquidity premium theory.
• C)pure expectations theory.
• D)theory of rational expectations.

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Definitions:

Exercise Price

The cost at which an option's owner is allowed to purchase (for a call option) or offload (for a put option) the underlying asset or commodity.

Time Value

The additional amount that investors are willing to pay for an asset, based on the potential for it to increase in value over time.

At-The-Money

A financial term describing an option whose strike price is identical to the current price of the underlying asset.

Put Option

A financial contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time.