Which of the Following Statements Is Most Correct

question 47

Multiple Choice

Which of the following statements is most correct?

• A) The more highly developed a nation's financial system is,the more likely funds are to flow from savers to borrowers by direct transfers as opposed to through financial intermediaries.
• B) If people in the aggregate have a strong time preference for current consumption as opposed to future consumption,this factor will cause interest rates to be lower than if preferences were more toward future consumption.
• C) If investors expect the rate of inflation to increase in the future,this would tend to cause the current short-term interest rate to be higher than current long-term rates.
• D) The existence of maturity risk premiums is due to the fact that a change in interest rates has more effect on the prices of short-term than long-term bonds.
• E) If a 1-year Treasury bond has a yield of 5 percent,if the expected rate of inflation during the coming year is 3 percent,and if the maturity risk and liquidity premiums on 1-year bonds are zero,then the real risk-free rate r* must be 2 percent.

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Definitions:

Dividend Yield

The ratio of a company's annual dividend payments to its share price, expressing the dividend as a percentage of the current share price.

Dividend Yield

A financial measure that represents the yearly dividend payout by a company compared to its stock price.

Expected Growth Rate

This is the rate at which a company, economy, or investment is anticipated to grow at an average annual rate over a specified period.

Expected Capital Gains Yield

The anticipated return on an investment due to the appreciation in value of the investment's assets, excluding dividends.