If the Expectations Theory of the Term Structure of Interest

question 14

Multiple Choice

If the expectations theory of the term structure of interest rates is correct, and if the other term structure theories are invalid, and we observe a downward sloping yield curve, which of the following is a true statement?

• A) Investors expect interest rates to be constant over time.
• B) Investors expect interest rates to increase in the future.
• C) Investors expect interest rates to decrease in the future.
• D) Investors require a positive maturity risk premium.
• E) The maturity risk premium must be positive.

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Definitions:

Perilymph

A fluid located in the inner ear, found within the scala tympani and scala vestibuli of the cochlea.

Cerumen

Another term for earwax, a substance secreted in the ear canal that protects and cleans the ears.

Tinnitus

A condition characterized by hearing noises (such as ringing, buzzing, or humming) in the ears when no external sound is present.

Vertigo

A sensation of spinning or having one's surroundings spin around them, which is often caused by problems with the inner ear or brain.