The Implication of the Expectations Theory That Expected Returns for a Holding

question 64

Multiple Choice

The implication of the expectations theory that expected returns for a holding period must be the same for bonds of different maturities depends on the assumption that:

• A) yield curves normally slope downward.
• B) yield curves normally slope upward.
• C) instruments with different terms to maturity are perfect substitutes.
• D) lenders are generally risk-averse.

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Definitions:

Probability

A rating of the potential occurrence of an event, depicted on a scale from 0 to 1.

Expected Income

The income an individual or business anticipates to receive over a certain period.

Utility Maximizer

An individual or agent who seeks to obtain the maximum possible satisfaction or utility from their consumption of goods and services.

Probability

The likelihood of a specific event or outcome occurring.