Which of the following is (are) true?

I) A consequence of unbiased expectations hypothesis is that investors investing over a 6-year period are indifferent between holding a 6-year bond or a 10-year bond and selling after 6 years.

II) The liquidity preference theory accounts for a flatter term structure as compared to a downward-sloping yield curve that is predicted by the unbiased expectations hypothesis.

III) The market segmentations hypothesis can explain only the upward sloping yield curve.

IV) The unbiased expectations hypothesis predicts that investors’ expectations about future inflation rates and real interest rates (expectations about future inflation rates are more important though) determine the yield curve assuming that either investors are risk-neutral or there is no uncertainty about future interest rates.

Group of answer choices

I only

I and II only

I, III and IV only

I, II and IV only

Answer rating: 100% (QA)

The detailed answer for the above question is provided below The correct answer is I and II only Exp... View the full answer