The Expectations Hypothesis Assumes

question 30

Multiple Choice

The Expectations Hypothesis assumes:

• A) A high level of uncertainty regarding the future of long-term yields
• B) Investors know the yields on bonds today and form expectations of the yields on short-term bonds in future time periods
• C) Securities of different maturities are not perfect substitutes for each other
• D) The risk premium increases with longer maturities

---

Definitions:

Straight-line Amortization

A method of reducing the carrying amount of an intangible asset over a fixed period of time in a systematic and rational manner.

Premium Amortization

The gradual expense or reduction of the premium paid above the par value of a debt security over its remaining term.

Interest Expense

The charge an entity bears for the funds it has borrowed over a set period.

Market Rate

The current price at which an asset or service can be bought or sold in a particular market.