Assuming That the Expectations Theory Is True, a Normal Yield

question 84

Multiple Choice

Assuming that the expectations theory is true, a normal yield curve implies that interest rates will:

• A) be lower in the future.
• B) be the same in the future.
• C) increase in the short-term, and then decrease.
• D) be higher in the future.
• E) decrease in the short-term, and then increase.

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Definitions:

Expected Growth Rate

This is the rate at which a company, economy, or investment is anticipated to grow at an average annual rate over a specified period.

Expected Capital Gains Yield

The anticipated return on an investment due to the appreciation in value of the investment's assets, excluding dividends.

Constant Rate

A steady, unchanging rate of growth or decline, often used in the context of compounding interest or economic indicators.

Expected Return

The weighted average of all possible returns for an investment, accounting for the probability of each outcome.