The ________ of the Term Structure States the Following: the Interest

question 37

Multiple Choice

The ________ of the term structure states the following: the interest rate on a long-term bond will equal an average of short-term interest rates expected to occur over the life of the long-term bond plus a term premium that responds to supply and demand conditions for that bond.

• A)segmented markets theory
• B)expectations theory
• C)liquidity premium theory
• D)separable markets theory

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Definitions:

Simplify

To simplify means to reduce an expression or equation to its simplest form, by combining like terms, reducing fractions, etc.

Combine

The process of uniting two or more expressions into a single expression using mathematical operations.

Simplify

The process of making an expression easier to understand or work with by combining like terms, reducing fractions, etc.

Rational Model

A mathematical model that uses rational expressions to describe relationships between different quantities.