Suppose the Interest Rate on a 1-Year T-Bond Is 5

question 69

Multiple Choice

Suppose the interest rate on a 1-year T-bond is 5.00% and that on a 2-year T-bond is 6.90%.Assuming the pure expectations theory is correct,what is the market's forecast for 1-year rates 1 year from now? Round the intermediate calculations to 4 decimal places and final answer to 2 decimal places.

• A) 7.16
• B) 8.83
• C) 6.63
• D) 7.42
• E) 8.04

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Definitions:

Particle

A small localized object which can be ascribed several physical properties such as volume or mass.

Iris

The iris is the colored part of the eye that controls the diameter and size of the pupil, thus regulating the amount of light that enters the eye.

Top-down Processing

A cognitive process that uses higher-level knowledge and expectations to understand and interpret sensory information.

Bottom-up Processing

A sensory processing approach that begins with input from the physical environment, with perception starting at the sensory level and moving up to higher levels of processing.