Suppose the Current One-Year Interest Rate Is 4

question 5

Multiple Choice

Suppose the current one-year interest rate is 4%.Also assume that financial markets expect the one-year interest rate next year to be 5%,and expect the one-year rate to be 6% the year after that.Given this information,the yield to maturity on a three-year bond will be approximately

• A)4%.
• B)5%.
• C)6%.
• D)15%.

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Definitions:

Minimum-Wage Law

Legislation that sets the lowest hourly wage rate that an employer can legally pay its workers, intended to protect workers from exploitation.

Equilibrium Level

A condition where the amount of goods and services available in the market equals the demand for them, leading to stable pricing and quantity levels.

Efficiency Wage

A higher-than-market wage paid by employers to increase worker productivity and loyalty.

Above-Equilibrium Wage

Wages that are set above the market equilibrium, often leading to excess supply of labor and potential unemployment.