Statements about theories of the yield curve

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Reference no: EM132055679

1. Your grandfather put some money in an account for you on the day you were born. You are now 18 years old and are allowed to withdraw the money for the first time. The account currently has $3996 in it and pays an 8% interest rate. How much money did your grandfather originally put in the account?

a. $ 7396.31

b. $ 6341.14

c. $ 148,779.12

d. $ 1000

e. $ 6848.44

2. Which of the following statements about theories of the yield curve is most likely correct?

a. A liquidity preference is not consistent with a flat term structure of interest rates

b. The pure expectations theory suggests that an upward-sloping term structure of interest rates is a consequence of investors expecting short-term rates to remain unchanged for a period of time, followed by investors expecting short-term rates to rise for a period of time

c. The liquidity preference theory suggests that a downward-sloping term structure of interest rates is due to declining expected short-term rates, and although there is a maturity premium to consider, it is not large enough to offset the expected decline in short-term rates

Reference no: EM132055679

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