Assume the Expectation Hypothesis Regarding the Term Structure of Interest

question 26

Multiple Choice

Assume the Expectation Hypothesis regarding the term structure of interest rates is correct. Then, if the current one-year interest rate is 4% and the two-year interest rate is 6%, then investors are expecting the future one-year rate to be:

• A) 4%.
• B) 8%.
• C) 6%.
• D) 5%.

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Definitions:

Substitute Check

An electronic or digital version of an original paper check, used in the banking industry to streamline check processing.

Warranties

Legally binding promises or guarantees that a product or service will meet specified criteria of quality, performance, or reliability.

Bad-Check Statute

Laws that penalize individuals who knowingly write checks from a bank account without sufficient funds.

Drawee Bank

The bank upon which a check is drawn, responsible for paying the check amount to the bearer or designated payee.