Suppose That the Interest Rate on a One-Year Bond Is

question 25

Multiple Choice

Suppose that the interest rate on a one-year bond is currently 3% and the market believes that the rate on a one-year bond one year from now will be 5%. If you follow the pure expectations theory of interest rates, then you would expect to see a(n) __________ yield curve.

• A)upward-sloping
• B)downward-sloping
• C)horizontal
• D)vertical

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Definitions:

Legally Enforce

The capability to impose compliance or execution of a law, agreement, or obligation through legal processes or judicial intervention.

Assignee

A person to whom an assignment is made.

Obligor

In contract law, the party who is obligated to deliver on a promise or to undertake some act.

Assignment

A legal transfer of rights, benefits, or obligations from one party to another.