Assume an Investor Has a Choice of 3 Consecutive One-Year

question 27

Multiple Choice

Assume an investor has a choice of 3 consecutive one-year bonds or one 3-year bond.Assuming the Expectations Hypothesis of the term structure of interest rates is correct the:

• A)average interest rate of the three consecutive one-year bonds should be less than the 3-year bond to reflect the risk premium.
• B)interest rate of the 3-year bond should equal the average interest rate of the 3 one-year bonds.
• C)three consecutive one-year bonds must have the same interest rate.
• D)current one-year interest rate must equal the current 3-year interest rate.

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Definitions:

Internalizing

The process of directing emotional distress inward, which can manifest as depression, anxiety, or withdrawal behavior.

Medical Consequences

The physical or psychological effects resulting from a specific medical condition, treatment, or intervention.

DSM-5

The Diagnostic and Statistical Manual of Mental Disorders, Fifth Edition, a comprehensive classification of mental disorders by the American Psychiatric Association.