Which Theory of Term Structure States That Long-Term Rates Are

question 85

Multiple Choice

Which theory of term structure states that long-term rates are equal to the geometric average of current and expected short-term rates plus a risk premium that increases with the maturity of the security?

• A)The unbiased expectations theory.
• B)The liquidity premium theory.
• C)The loanable funds theory.
• D)The market segmentation theory.
• E)None of the above.

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Definitions:

Machine-Hours

A measure of the time that a machine is operated, used as a way to allocate machine-related costs to products.

Fixed Manufacturing Overhead

Indirect and constant production costs that are not affected by the level of goods or services produced, including factory rent, salaries of supervisory personnel, and utility costs.

Unit Product Cost

The total cost associated with producing one unit of a product, calculated by dividing the total production costs by the number of units produced.

Overhead Applied

The portion of overhead costs allocated to individual products or services based on a predetermined rate.