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NEW QUESTION: 1
A. Option C
B. Option D
C. Option B
D. Option A
Answer: C
NEW QUESTION: 2
Which of the following is incorrect?
A. If the expectations hypothesis is true, then the current three-year yield would equal the yield of a two-year bond today plus the expected return on a one-year bond purchased two years from today.
B. Suppose the expectations hypothesis is true and the one year yield is less than the two year yield.
Then the market expects the one year spot rate a year from now to be greater than the current spot rate.
C. If real interest rates are stable (consistent with Irving Fisher's idea), and the expectations hypothesis is true then an upward sloping yield curve implies that the market expects the inflation to fall.
Answer: C
Explanation:
Irving Fisher's idea was that interest rates equal real interest rate plus expected inflation.
That means an upward sloping yield curve would imply that the market expects inflation to rise.
NEW QUESTION: 3
A. Option C
B. Option A
C. Option B
D. Option D
Answer: B
