- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 26. The Term Structure and Interest Rate Dynamics
- Subject 4. Traditional Theories of the Term Structure of Interest Rates
CFA Practice Question
What the unbiased expectations theory predicts are consistent with the assumption of:
A. risk aversion.
B. risk neutrality.
C. risk seeking.
Correct Answer: B
The theory assumes a risk-neutral world. It postulates that you would earn the same amount of interest by investing in a one-year bond today and rolling that investment into a new one-year bond a year later compared to buying a two-year bond today.
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