Assume the One-Year Interest Rate on a Bond Is 8

question 111

Multiple Choice

Assume the one-year interest rate on a bond is 8% and the expected one-year rate a year from now is 12%. According to the expectations theory of the term structure of interest rates, the two-year rate will be

• A) 8%.
• B) 10%.
• C) 12%.
• D) 22%.

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