Which of the following best explains why the long-term interest rate will generally change by less than 1% when the short-term interest rate changes by 1%?
A)The mathematical calculations are more difficult for analysts in the case of long-term bonds.
B)Long-term rates are always lower than short-term rates, so there is less room for them to change.
C)Financial market participants will not expect this increase in the short-term interest rate to persist fully in the future.
D)Financial markets are often affected by bubbles and fads.
E) none of the above

Question

Quizplus · Accepted Answer

Financial market participants typically do not expect short-term interest rate changes to persist fully in the future. Therefore, they will not adjust long-term interest rates as much as short-term interest rates.

Which of the Following Best Explains Why the Long-Term Interest