The Yield on a One-Year Bond Is Currently 4% and the Expected

question 26

Multiple Choice

The yield on a one-year bond is currently 4% and the expected yield on one-year bonds for the next two years is 5% and 6%. If the liquidity premium is 0.5%, what is the yield on a bond with two years to maturity?

• A) 4.5%
• B) 5%
• C) 5.5%
• D) 6%

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Definitions:

War of 1812

A conflict fought between the United States and Britain from 1812 to 1815, largely over issues of trade restrictions and the impressment of American sailors.

Federalist Party

An early American political party advocating for a strong federal government, and prominent in the late 18th to early 19th centuries.

Hartford Convention

An assembly of New England Federalists during the War of 1812, which discussed grievances against the U.S. government's war policies.

Popular Self-Government

The principle or practice where the people govern themselves directly or through elected representatives, forming the basis of democratic societies.