Which of the following statements is CORRECT? O a. If the pure expectations theory is correct, a downward-sloping yield curve indicates that interest rates are expected to decline in the future. O b. Downward-sloping yield curves are inconsistent with the expectations theory. O c. The actual shape of the yield curve depends only on expectations about future inflation. O d. If the yield curve is upward sloping, the maturity risk premium must be positive and the inflation rate must be zero. O e. Yield curves must be either upward or downward sloping-they cannot first rise and then decline.

Which of the following statements is CORRECT? O a. If the pure expectations theory is correct, a downward-sloping yield curve indicates that interest rates are expected to decline in the future. O b. Downward-sloping yield curves are inconsistent with the expectations theory. O c. The actual shape of the yield curve depends only on expectations about future inflation. O d. If the yield curve is upward sloping, the maturity risk premium must be positive and the inflation rate must be zero. O e. Yield curves must be either upward or downward sloping-they cannot first rise and then decline.

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

See similar textbooks

Similar questions

Which of the following best explains an upward sloping Treasury yield curve? A. Maturity risk is expected to decline in the future B. Long-term interest rates are more volatile than short-term rates C. Inflation risk premiums are higher for longer terms to maturity D. Default risk is higher for longer terms to maturity
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…
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.
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 is correct please suggest? QUESTION 35 The risk-free rate of return can be thought of as consisting of ____ and ____. a. unanticipated inflation; bond default premium b. a zero beta component; an expectation premium c. a real rate of return; an inflation premium d. a real rate of return; a default premium
Suppose the real risk-free rate and inflation rate are expected to remain at their current levels throughout the foreseeable future. Consider all factors that affect the yield curve. Then identify which of the following shapes that the US Treasury yield curve can take. Check all that apply. Downward-sloping yield curve Inverted yield curve Upward-sloping yield curve Identify whether each of the following statements is true or false. StatementS True False If inflation is expected to decrease in the future and the real rate is expected to remain steady, then the Treasury yield curve is downward sloping. (Assume MRP = 0.) All else equal, the yield on new bonds issued by a leveraged firm will be less than the yield on the new bonds issued by an unleveraged firm. The yield curve for a BBB-rated corporate bond is expected to be above the US Treasury bond yield curve. Yield curves of highly liquid assets will be lower than yield curves of relatively illiquid assets.
The normal yield curve states that long-term investors are compensated for which risk? A Maturity risk B Default risk C Sovereign risk D None of the above
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.
If the yield curve is downward sloping, what would the expectations theory suggest about expected future short-term interest rates?
10. An announcement that the prices of goods and services in the market are risking would cause an increase in which of the following? O a. The default risk premium O o The risk free rate ) r The liquidity risk premium O o The inflation risk premium
1. Explain how interest rate risk works?2. Explain the difference between a positively sloping and inverted (downward sloping) yield curve.3. What is the duration and why do we measure it?
Answer quickly please Nominal Risk-Free Rate (NRFR) , considers the conditions in the capital market and Expected rate of inflation Select one: True False

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS