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Question
Which of the following statements is most correct?
a. The more highly developed a nation's financial system is, the more likely funds are to flow from savers to borrowers by direct transfers as opposed to through financial intermediaries.
b. If people in the aggregate have a strong time preference for current consumption as opposed to future consumption, this factor will cause interest rates to be lower than if preferences were more toward future consumption.
c. If investors expect the rate of inflation to increase in the future, this would tend to cause the current short-term interest rate to be higher than current long-term rates.
d. The existence of maturity risk premiums is due to the fact that a change in interest rates has more effect on the prices of short-term than long-term bonds.
e. If a 1-year Treasury bond has a yield of 5 percent, if the expected rate of inflation during the coming year is 3 percent, and if the maturity risk and liquidity premiums on 1-year bonds are zero, then the real risk-free rate r* must be 2 percent.
Answer
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Related questions
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The simple arithmetic average return for the common stock of Saltwater Expeditions Incorporated for the eight-year period from 2005 through 2012 was 21 percent. The one-year holding period returns from 2005 through 2011 are given below. What is the implied one-year holding period return for 2012?
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