What Is the One-Year Interest Rate One Year from Now

question 40

Multiple Choice

What is the one-year interest rate one year from now if the current one-year interest rate is 3.49% and the two-year interest rate is 2.74%? Assume the rates are effective annual rates.

• A)1.54%
• B)1.95%
• C)2.00%
• D)3.12%
• E)4.25%

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Definitions:

WACC

Weighted Average Cost of Capital; a calculation of a firm's cost of capital where each category of capital is proportionately weighted, including equity, debt, preferred stock, and any other long-term debt.

Debt Financed

The use of borrowed funds to purchase assets or fund operations, typically involving interest payments to the lender.

Tax Rate

The percentage at which an individual or corporation is taxed by the government.

After-Tax Cost

The actual cost of an expense or investment to a company or individual after accounting for the effects of taxes.