Financial Securities That Are the Same in All Other Ways

question 80

True/False

Financial securities that are the same in all other ways may have differences in interest rates that reflect the differences in the ease of selling the security in the secondary market at a favorable price.

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Definitions:

Yield Curve

A line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates.

Normal Yield Curve

A graphical representation that shows interest rates on bonds of different maturities tend to increase the longer the term to maturity, under normal market conditions.

Expected Inflation

The anticipated rate at which the general level of prices for goods and services will rise over a period.

Expectations Theory

A theory that explains the term structure of interest rates based on the anticipation that the rates will move toward the average rate over the long term.