Question #52
Reading: Reading 25 The Term Structure and Interest Rate Dynamics
PDF File: Reading 25 The Term Structure and Interest Rate Dynamics.pdf
Page: 21
Status: Unattempted
Question
With respect to local expectations theory, which of the following statements is most consistent with market evidence?
Answer Choices:
A. Short-term holding period return of long-maturity bonds exceeds the short-term holding period returns of short-maturity bonds
B. Short-term holding period return of short-maturity bonds exceeds the short-term holding period returns of long-maturity bonds
C. Short-term holding period return of long-maturity bonds and the short-term holding period return of short-maturity bonds is the same
Explanation
Market evidence shows that short-term holding period returns from investing in long-
maturity bonds exceed the short-term holding period returns from investing in short-
maturity bonds.