Assuming That the Term Structure of Interest Rates Is Determined

question 17

Multiple Choice

Assuming that the term structure of interest rates is determined as posited by the pure expectations theory,which of the following statements is CORRECT?

• A) In equilibrium,long-term rates must be equal to short-term rates.
• B) An upward-sloping yield curve implies that future short-term rates are expected to decline.
• C) The maturity risk premium is assumed to be zero.
• D) Inflation is expected to be zero.
• E) Consumer prices as measured by an index of inflation are expected to rise at a constant rate.

---

Definitions:

Regulate

To control or maintain the rate or speed of a process or system according to a set of standards or requirements.

Vertebrates

A group of animals that have a backbone or spinal column, including mammals, birds, reptiles, amphibians, and fish.

Placoid Scales

The toothlike scales found in sharks and other cartilaginous fishes.

Cartilaginous Fishes

A class of fishes that have skeletons made entirely out of cartilage, rather than bone.