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testid=214897575¢erwin=yes Economics 21548-Money NP 8 : Quiz: Final Exam-Econ 2154 B Anes Dozo |04/19/20 11:38 PM is Question: 2 pts Time Remaining: 01:58:51 Submit Quiz 5 of 44 (0 complete) This Quiz: 50 pts possible uppose the interest rates on 1- 5-, and 10-year Canada bonds are currently 4%, 7%, and 7%, respectively. Investor A chooses to hold only 1-year bonds, and Investor B is indifferent between holding 5- and 10-year bonds, Which of the Select all that apply.) ollowing statements could explain the behaviour of Investor A? (Unless otherwise stated, assume that the interest rate on each bond is equal to the average of 1-year interest rates that Investor A expects will occur over the life of the bond.) A. Investor A is very risk-averse and therefore strongly prefers assets with less interest-rate risk, even when expected returns on other assets are higher. B. The liquidity premium that Investor A would require in order to choose a bond with maturity of 5 years or more is more than 3% above that for a 1-year bond. C. The liquidity premium that Investor A would require in order to choose a bond with maturity of 5 years or more is less than 3% above that for a 1-year bond. D. Investor A expects average 1-year interest rates over the next 5 and 10 years to be less than 7% and (holding everything else equal) does not have strong preferences for bonds of one maturity over bonds of another. E. Investor A expects average 1-year interest rates over the next 5 and 10 years to be greater than 7% and (holding everything else equal) does not have strong preferences for bonds of one maturity over bonds of another. F. Investor A is risk-neutral and therefore prefers assets with the greatest expected return, even when interest-rate risk on other assets is lower. Which of the following statements could explain the behaviour of Investor B? (Unless otherwise stated, assume that the interest rate on each bond is equal to the average of 1-year interest rates that Investor B expects will occur over the life of he bond.) (Select all that apply.) A. Investor B is risk-neutral and therefore prefers assets with the greatest expected return, even when interest-rate risk on other assets is lower. B. The liquidity premium that Investor B would require would require in order to choose a 5-year bond is equal to that for a 10-year bond and is more than 3% above that for a 1-year bond. C. Investor B expects average 1-year interest rates over the next 5 years to be less than average 1-year interest rates over the next 10 years and (holding everything else equal) does not have strong preferences for bonds of one maturity over bonds of another. D. The liquidity premium that Investor B would require would require in order to choose a 5-year bond is equal to that for a 10-year bond and is less than 3% above that for a 1-year bond. E. Investor B is very risk-averse and therefore strongly prefers assets with less interest-rate risk, even when expected returns on other assets are higher. F. Investor B expects average 1-year interest rates over the next 5 years to be greater than average 1-year interest rates over the next 10 years and (holding everything else equal) does not have strong preferences for bonds of one maturity over bonds of another. Click to select your answer(s). MacBook Air