Assume the Expectation Hypothesis Regarding the Term Structure of Interest

question 26

Multiple Choice

Assume the Expectation Hypothesis regarding the term structure of interest rates is correct. Then, if the current one-year interest rate is 4% and the two-year interest rate is 6%, then investors are expecting the future one-year rate to be:

• A) 4%.
• B) 8%.
• C) 6%.
• D) 5%.

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Definitions:

Genetically Determined

Traits or characteristics that are inherited from one's parents through genes.

Ego

The component of the mind in psychoanalytic theory that mediates between the unconscious desires of the id and the moral constraints of the superego.

Present Behavior

The current actions or mannerisms exhibited by an individual, as observed or reported at a given time.

Conscious Plans

Thoughtfully considered actions or decisions one intends to carry out, fully aware and deliberate.