The Unbiased Expectations Theory of the Term Structure of Interest

question 75

Multiple Choice

The unbiased expectations theory of the term structure of interest rates:

• A)assumes that long-term interest rates are an arithmetic average of short-term rates
• B)assumes that the yield curve reflects the market's current expectations of future short-term interest rates
• C)recognises that forward rates are perfect predictors of future interest rates
• D)assumes that risk premiums increase uniformly with maturity

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Definitions:

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Testable explanation of a natural phenomenon.

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Definitive or decisive description that leaves no room for doubt or questions.

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