If I (2020) Denotes the Annual Interest Rate on 2-Year

question 28

Multiple Choice

If i (2020) denotes the annual interest rate on 2-year bonds issued in 2020 and i (2020) and 2 1
I (2021) represent interest rates on 1-year bonds purchased in 2020 and 2021, the
1
Equilibrium relationship between the 2-year bond and the two 1-year bonds is:

• A)i (2020) = i (2020) + i (2021). 2 1 1
• B)i (2020) = (1/2)[i (2020) + i (2021)].
• C)i (2020) = (1/2)[i (2020) - i (2021)]. 2 1 1
• D)i (2020) = 2·[i (2020) + i (2021)]. 2 1 1

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Definitions:

Work In Process

An inventory category that refers to partially completed goods that are still in production.

FIFO Method

"First In, First Out" method, an inventory costing technique that assumes the first items added to inventory are the first ones sold.

Beginning Inventory

The value of all the inventory held by a business at the start of an accounting period.

Equivalent Units

A concept in cost accounting used to express the amount of work done on incomplete units in terms of fully completed units.