Suppose We Observe the Following Rates: ₁R₁ = 12 Percent

question 113

Multiple Choice

Suppose we observe the following rates: ₁R₁ = 12 percent, ₁R₂ = 15 percent. If the unbiased expectations theory of the term structure of interest rates holds, what is the one-year interest rate expected one year from now, E(₂r₁) ?

• A) 13.5 percent
• B) 14.2 percent
• C) 15.6 percent
• D) 18.0 percent

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Definitions:

Petty Cash

A small amount of cash on hand used for covering minor expenses, managed through a petty cash fund.

Money Orders

A financial instrument, purchased for a specific amount of money, that is used for making payments from one party to another.

Internal Control System

Processes and procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud.

Reliable Accounting

An accounting approach that emphasizes accuracy, verifiability, and impartiality in financial reporting.