The Market Rate of Interest on 2 Year Bonds Is

question 8

Multiple Choice

The market rate of interest on 2 year bonds is 6.25% while the rate on a one year bond maturing on one year is 5.50%. The forward rate on a one year bond one year from now is 6.5%. The liquidity premium to induce investors to hold the 2 year bond is:

• A) 0.250%.
• B) 0.005%.
• C) 0.125%.
• D) 0.500%.

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Definitions:

Histogram

A graphical representation of the distribution of numerical data, usually a bar graph, where the data is grouped into ranges or bins and the frequency of data points within each range is depicted.

Median

The middle value in a list of numbers, which separates the higher half from the lower half.

Skewed

A skewed distribution is one where the data points tend to cluster more on one side of the scale than the other, leading to an asymmetric curve with a long tail on one end.

Symmetric

Symmetric in statistics refers to a distribution or data set where the shape on either side of the mean is a mirror image, indicating equal distribution around the center.