The Unbiased Expectations Theory of the Term Structure of Interest

question 75

Multiple Choice

The unbiased expectations theory of the term structure of interest rates:

• A)assumes that long-term interest rates are an arithmetic average of short-term rates
• B)assumes that the yield curve reflects the market's current expectations of future short-term interest rates
• C)recognises that forward rates are perfect predictors of future interest rates
• D)assumes that risk premiums increase uniformly with maturity

---

Definitions:

Procedural

Relating to an established or official way of doing something, often involving a series of steps or operations.

Autobiographical

Pertaining to the account of a person’s life, written or told by that person.

Episodic

Pertaining to events or experiences that are organized into discrete, individual units or episodes in memory.

Generic

Attribute or thing that is characteristic of all or most members of a class, not specific or specialized.