Which of the Following Statements Is True

question 13

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 will be upward sloping.
• C) The real rate of interest varies with the business cycle, with the lowest rates seen 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:

Assets

Valuable items, resources, or properties owned by an individual, corporation, or country, which have economic value and can be converted into cash.

Liabilities

Financial obligations or debts that a company owes to others, which are expected to be paid in the future.

Economic Income

The total value of all income received over a period of time, including wages, rents, profits, and transfer payments.

Taxable Income

The amount of income used to calculate how much tax an individual or a company owes to the government in a specific period.