Assume That the Expectations Theory Holds,and That Liquidity and Maturity

question 45

Multiple Choice

Assume that the expectations theory holds,and that liquidity and maturity risk premiums are zero.If the annual rate of interest on a 2-year Treasury bond is 10.5 percent and the rate on a 1-year Treasury bond is 12 percent,what rate of interest should you expect on a 1-year Treasury bond one year from now?

• A) 9.0%
• B) 9.5%
• C) 10.0%
• D) 10.5%
• E) 11.0%

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Definitions:

Biased Sample

A subset of a population selected in a manner where some members of the intended population are less likely to be included than others, potentially leading to skewed outcomes.

Longitudinal Design

A research method in which data is gathered for the same subjects repeatedly over a period of time to observe changes and development.

Inexpensive

Not costing a lot of money; affordable.

Cross-Sectional Design

A research method in which data is collected from a population, or a representative subset, at one specific point in time.