If a One-Year Bond Currently Yields 5% and Is Expected

question 27

Multiple Choice

If a one-year bond currently yields 5% and is expected to yield 7% next year,the liquidity premium theory predicts that the yield today on a two-year bond should be

• A) 5%.
• B) less than 6%, but more than 5%.
• C) 6%.
• D) more than 6%.

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