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.

Question

Quizplus · Accepted Answer

The pure expectations theory suggests that if longer-term interest rates are higher than shorter-term rates, it is because the market expects interest rates to rise in the future.

Assuming the Pure Expectations Theory Is Correct,which of the Following