CFA Practice Question

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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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