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c.  interest rates on bonds of different maturities do not move together over time.

d.  all of the above.

54. According to the preferred habitat theory of the term structure

a.  because buyers of bonds may prefer bonds of one maturity over another, interest rates on bonds of different maturities do not move together over time.

b.  the interest rate on longterm bonds will equal an average of shortterm interest rates that people expect to occur over the life of the longterm bonds plus a term premium.

c.  because of the positive term premium, the yield curve will not be observed to be downward sloping.

d.  all of the above.

e.  only (a) and (b) of the above.

55. The spread between the interest rates on bonds with default risk and default-free bonds is called the

a.  risk premium.

b.  junk margin.

c. bond margin.

d.  default premium.

56. The expectations hypothesis and the segmented markets theory do not explain the facts very well, but they provide the groundwork for the most widely accepted theory of the term structure of interest rates,

a.  the Keynesian theory.

b. separable markets theory.

c. preferred habitat theory.

d.  the asset market approach.

57.  Economists attempts to explain the term structure of interest rates

a.  illustrate how economists modify theories to improve them when they are inconsistent with the empirical evidence.

b.  illustrate how economists continue to accept theories that fail to explain observed behavior of interest rate movements.

c.  prove that the real world is a special case that tends to get short shrift in theoretical models.

d.  have proved entirely unsatisfactory to date.

58.  The _____ of the term structure of interest rates states that the interest rate on a long-term bond will equal the average of short-term interest rates that individuals expect to occur over the life of the long-term bond.

a.  segmented markets theory

b.  expectations hypothesis

c.  preferred habitat theory

d.  separable markets theory

59. When the yield curve is upward sloping,

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