Of the Four Theories That Explain How Interest Rates on Bonds

question 72

Multiple Choice

Of the four theories that explain how interest rates on bonds with different terms to maturity are related,the one that views long-term interest rates as equaling the average of future short-term rates expected to occur over the life of the bond is the

• A) pure expectations theory.
• B) preferred habitat theory.
• C) liquidity premium theory.
• D) segmented markets theory.

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Definitions:

Copper

A reddish-brown, malleable, ductile metallic element with high electrical and thermal conductivity, used in many alloys and as electrical conductors.

Zinc

A metallic chemical element with the symbol Zn and atomic number 30, used in alloys and as a protective coating for iron and steel.

Factor Prices

The prices of inputs such as labor, capital, land, and raw materials used in the production of goods or services.

Production Function

An equation that describes the maximum output of a product that can be obtained from a given set of inputs.