If a One-Year Bond Currently Yields 5% and Is Expected

question 52

Multiple Choice

If a one-year bond currently yields 5% and is expected to yield 7% next year, the preferred habitat theory predicts that the yield today on a two-year bond will be

• A)5%.
• B)less than 6%, but more than 5%.
• C)6%.
• D)more than 6%.

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Definitions:

Currency Trader

An individual or entity that buys and sells currency pairs on the foreign exchange market to profit from exchange rate fluctuations.

Quorum

The minimum number of members required to be present to make the proceedings of a meeting valid.

Directors

Members of a company's board responsible for making strategic decisions and ensuring the company's compliance with legal and ethical standards.

Business Decisions

The choices made by individuals or groups in regard to the operation, management, and strategy of a business.