The Expectations Hypothesis Cannot Explain Why

question 35

Multiple Choice

The Expectations Hypothesis cannot explain why:

• A)yields on securities of different maturities move together.
• B)short-term yields are more volatile than long term yields.
• C)yield curves usually slope upward.
• D)long-term bonds usually are less liquid than short-term bonds with the same default risk.

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Definitions:

Displacement

A defense mechanism where negative feelings or impulses are redirected from the original object to a more acceptable or safer target.

Overextension

A linguistic error, common in early language development, where a child applies a word in a broader context than is appropriate.

Functional Fixedness

The tendency to view an object in terms of its name or familiar usage.

Divergent Thinking

A mental approach or technique for producing inventive ideas through the examination of numerous potential answers.