Applying the Expectations Theory, a Bank Depositor Chooses Between Purchasing

question 43

Multiple Choice

Applying the expectations theory, a bank depositor chooses between purchasing a one- year CD paying 5 percent and a two-year CD paying 5.5 percent. If indifferent between the two, the depositor must expect one-year CDs one year from now to have a rate of

• A) 6.5%
• B) 4.5%
• C) 6.0%
• D) 5.0%

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Definitions:

Independent Variable

A variable in an experiment that is manipulated to observe its effect on the dependent variable.

Variable Manufacturing Cost

Direct costs associated with manufacturing, changing with the level of output, including direct materials, direct labor, and variable manufacturing overhead.

Production Volume

The total quantity of goods produced within a specific period by a manufacturing entity.

Engineering Approach

A detailed analysis of cost behavior based on an industrial engineer’s evaluation of the inputs that are required to carry out a particular activity and of the prices of those inputs.