Asked by Ermina Coronas on Jun 20, 2024
Verified
When investors believe that inflation is going to decline in the future the term structure of interest rates will:
A) Be humped.
B) Rise at an increasing rate over a period of time.
C) Rise in a linear manner over a period of time.
D) Be higher in the long term than in the short term.
E) Decrease as the time to maturity gets longer.
Term Structure
The relationship between interest rates or bond yields and different terms or maturities, often depicted in a curve.
Inflation
The pace at which prices for services and products in general ascend, resulting in a decrease in the value of money to buy goods.
- Examine the configuration of interest rates and their elements.
Verified Answer
MY
Michelle YehudaJun 27, 2024
Final Answer :
E
Explanation :
When investors anticipate a decline in inflation, they expect lower interest rates in the future. This expectation leads to a term structure where interest rates decrease as the time to maturity gets longer, reflecting lower future rates.
Learning Objectives
- Examine the configuration of interest rates and their elements.