Assume the One-Year Interest Rate on a Bond Is 6

question 199

Multiple Choice

Assume the one-year interest rate on a bond is 6% and the expected one-year rate a year from now is 9%. According to the expectations theory of the term structure of interest rates, the two-year rate will be

• A) 6%.
• B) 7.5%.
• C) 9%.
• D) 15%.

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