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1. The expectations hypothesis states that investors
A. expect higher long−term interest rates because of the lack of liquidity for long−term bonds.
B. require the real rate of return to rise in direct proportion to the length of time to maturity.
C. normally expect the yield curve to be downsloping.
D. require higher long−term interest rates today if they expect higher inflation rates in the future.
2. Believers in efficient markets tend to explain away market anomalies as
I. random occurrences that create an illusion of causality.
II. errors resulting from inaccurate measures of risk.
III. the result of illegal price manipulation by corporate insiders.
IV. the effect of normal human emotions such as fear and greed.
A. ?I, II and III only
B. I and II only
C. I and III only
D. ?I, II, III and IV
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