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If bonds with different maturities are perfect substitutes, then the ____ on these bonds
must be equal.
A) expected return
B) surprise return
C) surplus return
D) excess return
Answer: A
Diff: 1 Type: MC Page Ref: 120
Skill: Recall
Objective List: 6.2 Explain how interest rates on bonds with different maturities are related
If the expected path of one-year interest rates over the next five years is 4 percent, 5 percent,
7 percent, 8 percent, and 6 percent, then the expectations theory predicts that today's interest rate
on the five-year bond is ____.
A) 4 percent
B) 5 percent
C) 6 percent
D) 7 percent
Answer: C
Diff: 2 Type: MC Page Ref: 120 - 122
Skill: Applied
Objective List: 6.2 Explain how interest rates on bonds with different maturities are related
If the expected path of 1-year interest rates over the next four years is 5 percent, 4 percent, 2
percent, and 1 percent, then the expectations theory predicts that today's interest rate on the four-
year bond is ____.
A) 1 percent
B) 2 percent
C) 3 percent
D) 4 percent
Answer: C
Diff: 2 Type: MC Page Ref: 120 - 122
Skill: Applied
Objective List: 6.2 Explain how interest rates on bonds with different maturities are related
If the expected path of 1-year interest rates over the next five years is 1 percent, 2 percent, 3
percent, 4 percent, and 5 percent, the expectations theory predicts that the bond with the highest
interest rate today is the one with a maturity of ____.
A) two years
B) three years
C) four years
D) five years
Answer: D
Diff: 2 Type: MC Page Ref: 120 - 122
Skill: Applied
Objective List: 6.2 Explain how interest rates on bonds with different maturities are related