Using the Expectations Theory of Term Structure,a Negatively Sloped Yield

question 2

Multiple Choice

Using the expectations theory of term structure,a negatively sloped yield curve indicates that investors expect:

• A) falling long-term interest rates.
• B) rising long-term interest rates.
• C) falling short-term interest rates.
• D) rising short-term interest rates.

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Definitions:

Gross Income

The total income earned before any deductions or taxes are subtracted.

Back-end Ratio

A debt-to-income ratio that calculates the percentage of a person's gross income going toward paying all debt obligations, including mortgage and auto loans.

Expenses

Costs incurred or money spent on goods and services.

Escrow Account

An escrow account is a financial arrangement where funds or assets are held by a third party on behalf of two other parties in the process of completing a transaction.