Which of the Following Statements Is True

question 51

Multiple Choice

Which of the following statements is true?

• A) The longer the maturity of a security, the greater its interest rate risk.
• B) If investors believe inflation will be subsiding in the future, the prevailing yield curve will have a positive slope .
• C) The real rate of interest varies with the business cycle, with the lowest rates at the end of a period of business expansion and the highest at the bottom of a recession.
• D) The interest rate risk premium always adds a downward bias to the slope of the yield curve.

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Definitions:

Call Contract

A financial contract that gives the holder the right, but not the obligation, to buy a stock, bond, commodity, or other asset at a specified price within a specific time period.

Option Contract

An agreement that gives the owner the right, but not the obligation, to buy or sell a specific asset at a specific price for a set period of time.

Put Options

Financial contracts giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a predetermined price within a specified time frame.

Exercise Price

The price set for buying or selling an asset under the terms of an options contract.