Which of the Following Best Explains Why the Long-Term Interest

question 18

Multiple Choice

Which of the following best explains why the long-term interest rate will generally change by less than 1% when the short-term interest rate changes by 1%?

• A)The mathematical calculations are more difficult for analysts in the case of long-term bonds.
• B)Long-term rates are always lower than short-term rates, so there is less room for them to change.
• C)Financial market participants will not expect this increase in the short-term interest rate to persist fully in the future.
• D)Financial markets are often affected by bubbles and fads.
• E) none of the above