Assess the following statement: 1. If investors were indifferent to maturities, the return of any security should equal the compounded yield of consecutive investments in shorter-term securities. II. The forward rate is sometimes used as an approximation of the market's consensus interest rate forecast. The reason is that, if the market had a different perception, the demand and supply of today's existing two-year and one-year securities would adjust to capitalize on this information. III. According to pure expectations theory, the term structure of interest rates is determined solely by expectations of interest rates. O Only one statement is correct. All statements are correct. O No answer text provided. Only one statement is incorrect.
Assess the following statement: 1. If investors were indifferent to maturities, the return of any security should equal the compounded yield of consecutive investments in shorter-term securities. II. The forward rate is sometimes used as an approximation of the market's consensus interest rate forecast. The reason is that, if the market had a different perception, the demand and supply of today's existing two-year and one-year securities would adjust to capitalize on this information. III. According to pure expectations theory, the term structure of interest rates is determined solely by expectations of interest rates. O Only one statement is correct. All statements are correct. O No answer text provided. Only one statement is incorrect.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Assess the following statement:
1. If investors were indifferent to maturities, the return of any security should equal the
compounded yield of consecutive investments in shorter-term securities.
II. The forward rate is sometimes used as an approximation of the market's consensus
interest rate forecast. The reason is that, if the market had a different
perception, the demand and supply of today's existing two-year and one-year
securities would adjust to capitalize on this information.
III. According to pure expectations theory, the term structure of interest rates is
determined solely by expectations of interest rates.
O Only one statement is correct.
All statements are correct.
O No answer text provided.
O Only one statement is incorrect.
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