According to the expectations theory of the term structure, Group of answer choices A) when the yield curve is downward-sloping, short-term interest rates are expected to remain relatively stable in the future. B) investors have strong preferences for short-term relative to long-term bonds, explaining why yield curves typically slope upward. C) when the yield curve is steeply upward-sloping, short-term interest rates are expected to rise in the future. D) all of the above. E) only A and B of the above.

According to the expectations theory of the term structure, Group of answer choices A) when the yield curve is downward-sloping, short-term interest rates are expected to remain relatively stable in the future. B) investors have strong preferences for short-term relative to long-term bonds, explaining why yield curves typically slope upward. C) when the yield curve is steeply upward-sloping, short-term interest rates are expected to rise in the future. D) all of the above. E) only A and B of the above.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 4QTD

See similar textbooks

Similar questions

Assuming the pure expectations theory is correct, an upward-sloping yield curve implies:a. Interest rates are expected to increase in the future.b. Longer-term bonds are riskier than short-term bonds.c. Interest rates are expected to decline in the future.
Which of the following statements is CORRECT about the yield curve? A) The yield curve shows the behaviour of interest rate forecasts. B) When short-term rates are lower than long-term rates, there is a downward-sloping yield curve. C) A downward-sloping yield curve shows that investors demand an additional risk premium for lending money over the long term. D) A downward-sloping yield curve indicates that the market expects a future rise in interest rates.
According to the expectations theory of the term structure, O a when the yield curve is steeply upward-sloping, short-term interest rates are expected to rise in the future. O b. when the yield curve is downward-sloping, short-term interest rates are expected to decline in the future. O c. buyers of bonds prefer short-term to long-term bonds. O d. all of the above. O e. only A and B of the above.
Suppose an investor observes an upward term structure of interest rate. Answer the followingquestions. (a) According to the expectation hypothesis, what will be the investor’s forecast about futurechange of interest rate (increase, decrease or unchanged)? (b) What will the investor say about the future change of interest rate according to liquiditypreference theory? Explain your argument.
Which of the following is consistent with the pure expectations theory of the yield curve? Check all that apply. A downward-sloping yield curve suggests that the market thinks interest rates in the future will be higher than they are today. ✓ A downward-sloping yield curve suggests that the market thinks interest rates in the future will be lower than they are today. A flat yield curve suggests that the market thinks interest rates in the future will be the same as they are today. A flat yield curve suggests that the market thinks interest rates in the future will be higher than they are today. Maria would like to invest a certain amount of money for two years and considers investing in a one-year bond that pays 6 percent and a two-year bond that pays 9 percent. Maria is considering the following investment strategies: Strategy A: In the first year, buy a one-year bond that pays 6 percent. Once that bond matures, buy another one-year bond that pays the forward rate. Strategy B: In the…
answer pls
Under the expectations hypothesis, if the yield curve is upward-sloping, the market must expect an increase in short-term interest rates. True/false/uncertain? Why?
Which one of the following statements about the term structure of interest rates is true? A) The expectations hypothesis predicts a flat yield curve if anticipated future short-term rates exceed current short-term rates. B) The liquidity premium theory contends that lenders prefer to buy securities at the ghort-term end of the curve. C) The expectations hypothesis contends that the long-term spot rate is equal to the short-term rate. D) The liquidity premium theory indicates that, all else being equal, longer maturity bonds will have lower yields.
An upward-sloping yield curve may be an indication that interest rates are expected to increase. may incorporate a liquidity premium. may reflect the confounding of the liquidity premium with interest rate- expectations. All of the opțions are correct. None of the options are correct.
Consider the following scenario analysis A. Is it reasonable to assume that treasury bonds will provide higher returns in recessions than in booms? B. Calculate the expected rate of return and standard deviation for each investment. C. What investment would you prefer?
If the yield curve in the bond market shows a flat curve, what do you think about the prediction of the liquidity premium in explaining this phenomenon? Then do you prefer the prediction of expectation theory in explaining this phenomenon?
Which one of the following statements about the term structure of interest rates is true?a. The expectations hypothesis indicates a flat yield curve if anticipated future short-term rates exceed current short-term rates.b. The expectations hypothesis contends that the long-term rate is equal to the anticipated short-term rate.c. The liquidity premium theory indicates that, all else being equal, longer maturities will have lower yields.d. The liquidity preference theory contends that lenders prefer to buy securities at the short end of the yield curve.