According to the Expectations Theory of the Term Structure, If

question 9

Multiple Choice

According to the Expectations Theory of the term structure, if interest rates are expected to be 2%, 2%, 4%, and 5% over the next four years, which yield is the closest to the yield on a three-year bond today?

• A) 2.7%
• B) 4%
• C) 4.3%
• D) 8%

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Definitions:

Petroleum

A naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons and other organic compounds, used primarily as fuel and in the production of various chemicals.

Crude Oil

A naturally occurring, unrefined petroleum product composed of hydrocarbon deposits and other organic materials, used as a fuel and raw material in chemical industries.

Opportunity Cost

Surrendering the chance for gains from other choices by opting for one path.

Machinery

Equipment, especially of a mechanical nature, used in the production process of goods.