The Expectations Theory of the Term Structure of Interest Rates

question 15

Multiple Choice

The expectations theory of the term structure of interest rates states that

• A) forward rates are determined by investors' expectations of future interest rates.
• B) forward rates exceed the expected future interest rates.
• C) yields on long- and short-maturity bonds are determined by the supply and demand for the securities.
• D) All of the options are correct.
• E) None of the options are correct.

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Definitions:

Introspection

The examination or observation of one's own mental and emotional processes.

Behavior

The actions or reactions of an individual, in response to external or internal stimuli, encompassing physical and mental processes.

Biological Approach

A perspective in psychology that emphasizes the importance of physical processes in the body, such as genetic inheritance and neural function, in understanding human behavior.

Psychology

The scientific study of the mind and behavior, examining how individuals think, act, and interact.