Given R₁ =

question 28

Multiple Choice

Given r₁ = .050 and r₂ = .054, what can you deduce about investor's expectations of future short-term interest rates if the expectations hypothesis is correct?

• A) Investors expect future short-term rates to be greater than current short-term rates.
• B) Investors expect future short-term rates to be less than current short-term rates.
• C) Investors expect future short-term rates to be equal to current short-term rates.
• D) Investors expect future short-term rates to be higher than current forward rates.

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Definitions:

Straight-Line Method

A depreciation method that allocates an equal amount of the depreciable cost of an asset to each year of its useful life.

Semiannual Interest

Interest that is calculated and paid twice a year.

Bond Premium

When a bond's selling price surpasses its original issued cost, known as its face value.

Annual Interest

The amount of interest charged or earned over a year on borrowed capital or investment principal.