In a Multifactor Model, What Does Confidence Risk Represent

question 23

Multiple Choice

In a multifactor model, what does confidence risk represent?

• A) Unanticipated changes in the level of overall business activity.
• B) Unanticipated changes in investors' desired time to receive payouts.
• C) Unanticipated changes in short term and long term inflation rates.
• D) Unanticipated changes in the willingness of investors to take on investment risk.
• E) None of the above.

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Definitions:

Gilts

Government bonds issued by the United Kingdom, considered low-risk investments since they are backed by the British government.

Unbiased Forward Rates

Interest rates or currency exchange rates that are equal to the expected future spot rates, implying no arbitrage opportunities.

Exchange Rate

The exchange rate reflecting the value of one currency compared to another.

Spot Exchange Rate

This is the current exchange rate at which two currencies can be exchanged immediately.