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Assume an Investor Has a Choice of 3 Consecutive One-Year

Question 27

Multiple Choice

Assume an investor has a choice of 3 consecutive one-year bonds or one 3-year bond.Assuming the Expectations Hypothesis of the term structure of interest rates is correct the:


A) average interest rate of the three consecutive one-year bonds should be less than the 3-year bond to reflect the risk premium.
B) interest rate of the 3-year bond should equal the average interest rate of the 3 one-year bonds.
C) three consecutive one-year bonds must have the same interest rate.
D) current one-year interest rate must equal the current 3-year interest rate.

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