The Term Structure of Interest Rates Describes the Relationship Between

question 113

Multiple Choice

The term structure of interest rates describes the relationship between the interest rate charged and the _____

• A)duration of a loan.
• B)amount of a loan.
• C)riskiness of a borrower.
• D)credit history of a borrower.
• E)age of a borrower.

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Definitions:

Capital Asset Pricing Model (CAPM)

Equation of the Security Market Line showing the relationship between expected return and beta.

Reward To Risk Ratio

A measure that evaluates the anticipated gains from an investment against the level of risk assumed to achieve these gains.

Security Market Line

A graphical representation of the expected return of all risky marketable securities as a function of their beta, or systemic risk, according to the capital asset pricing model.

Diversifiable Risk

Relates to the risk that can be reduced or eliminated from a portfolio by holding a variety of investments.