Under the Pure Expectations Theory, if these investors believe that interest rates will rise in the near future, a. Two statements are correct. b. they will make up for the lower short-term yield when the short-term securities mature, and they reinvest at a higher rate (if interest rates rise) at maturity. c. All statements are correct. d. the large supply of funds in the short-term market will force annualized yields down, while the reduced supply of long-term funds forces long-term yields up. e. they will invest their funds mostly in the short-term risk-free securities so that they can soon reinvest their funds in securities that offer higher yields after interest rates increase. f. their actions cause funds to flow into the short-term market and away from the long-term market. g. Three statements are correct.
Under the Pure Expectations Theory, if these investors believe that interest rates will rise in the near future, a. Two statements are correct. b. they will make up for the lower short-term yield when the short-term securities mature, and they reinvest at a higher rate (if interest rates rise) at maturity. c. All statements are correct. d. the large supply of funds in the short-term market will force annualized yields down, while the reduced supply of long-term funds forces long-term yields up. e. they will invest their funds mostly in the short-term risk-free securities so that they can soon reinvest their funds in securities that offer higher yields after interest rates increase. f. their actions cause funds to flow into the short-term market and away from the long-term market. g. Three statements are correct.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Under the Pure Expectations Theory, if these investors believe that interest rates will rise in the near future,
a. Two statements are correct.
b. they will make up for the lower short-term yield when the short-term securities mature, and they reinvest at a higher rate (if interest rates rise) at maturity.
c. All statements are correct.
d. the large supply of funds in the short-term market will force annualized yields down, while the reduced supply of long-term funds forces long-term yields up.
e. they will invest their funds mostly in the short-term risk-free securities so that they can soon reinvest their funds in securities that offer higher yields after interest rates increase.
f. their actions cause funds to flow into the short-term market and away from the long-term market.
g. Three statements are correct.
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