Q 46

Assuming the pure expectations theory is correct,which of the following statements is CORRECT? A) If 2-year Treasury bond rates exceed 1-year rates,then the market must expect interest rates to rise. B) If both 2-year and 3-year Treasury rates are 7%,then 5-year rates must also be 7%. C) If 1-year rates are 6% and 2-year rates are 7%,then the market expects 1-year rates to be 6.5% in one year. D) Reinvestment rate risk is higher on long-term bonds,and interest rate (price)risk is higher on short-term bonds. E) Interest rate (price)risk and reinvestment rate risk are relevant to investors in corporate bonds,but these concepts do not apply to Treasury bonds.

Multiple Choice