According to the Expectations Hypothesis, If Investors Believed That, for a Given

question 92

Multiple Choice

According to the Expectations Hypothesis, if investors believed that, for a given holding period, the average of the expected future short-term yields was greater than the long-term yield for the holding period, they would act so as to drive:

• A)down the price of the short-term bond and drive up the price of the long-term bond.
• B)up the price of the short-term bond and drive down the price of the long-term bond.
• C)up the prices of both the short- and long-term bonds.
• D)down the prices of both the short- and long-term bonds.