Modern Term Structure Theory Supports the Contention That the Term

question 82

Multiple Choice

Modern term structure theory supports the contention that the term structure of interest rates will:

• A)be upward sloping.
• B)be downward sloping.
• C)be upward sloping in the short term and relatively flat in the long term.
• D)be constant over time.
• E)change over time.

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Definitions:

Fixed Corporate Costs

Expenses that do not vary with production volume or sales, such as salaries of managerial staff and rent for corporate headquarters.

Fixed Expenses

Costs that do not fluctuate with changes in production level or sales volume.

Avoidable Expenses

Costs that can be eliminated if a certain decision is made, such as discontinuing a product line.

Financial Advantage

A benefit enjoyed by an entity that puts it in a stronger financial position, such as lower costs, greater revenues, or superior investment returns.