If Interest Rates Are Expected to Decrease, the Yield on New

question 67

Multiple Choice

If interest rates are expected to decrease, the yield on new short-term securities may be expected to ____, and the yield curve should be ____ sloping.

• A)increase; upward
• B)increase; downward
• C)decrease; upward
• D)decrease; downward

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Definitions:

Optimistic

A disposition or belief that good things will happen and that investment risks are more likely to result in positive outcomes.

Risk-Return Trade-Off

The principle that potential return on investment increases with the amount of risk undertaken in the investment.

Expected Returns

A projection of the amount of profit or loss an investment is likely to generate, factoring in various probabilities.

Higher-Risk Assets

Refers to investments that carry a greater possibility of losing value but offer a higher potential for financial rewards compared to lower-risk assets.