Assume the Expectations Hypothesis Regarding the Term Structure of Interest

question 53

Multiple Choice

Assume the expectations hypothesis regarding the term structure of interest rates is correct. If the current one-year interest rate is 3% and the one-year-ahead expected one-year interest rate is 5%, then the current two-year interest rate should be:

• A) 3%.
• B) 5%.
• C) 4%.
• D) 8%.

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