The Expectations Theory of the Term Structure of Interest Implies

question 47

Multiple Choice

The expectations theory of the term structure of interest implies that:

• A)interest received on securities is in accordance with term to maturity.
• B)bond investors can expect to achieve the same return over any future period,regardless of the security in which they invest.
• C)there is a premium due to uncertainty about the future level of interest rates.
• D)there is a risk that borrowers may default on the payment of the principal.

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Definitions:

Amylase

An enzyme, found chiefly in saliva and pancreatic fluid, that converts starch and glycogen into simple sugars.

Elastase

An enzyme that breaks down elastin, an important protein in connective tissue which provides elasticity.

Enzymatic Reaction

A chemical process catalyzed by enzymes, speeding up reactions in the cells.

Reactants

Reactants are substances initially present in a chemical reaction that are consumed during the reaction to form products.