Multiple Choice
Under the expectations hypothesis, bonds of different maturities are assumed to be perfect substitutes because:
A) the risk premium is assumed to be negative.
B) market forces would always have long-term interest rates equal the average of the current and expected short-term rate.
C) expectations of future interest rates are uncertain and therefore cannot be included in the analysis.
D) bond markets are very liquid.
Correct Answer:
Verified
Correct Answer:
Verified
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