Suppose the Yield Curve Is Initially Horizontal

question 37

Multiple Choice

Suppose the yield curve is initially horizontal.Suppose the current one-year interest rate increases by 4% while the expected future one-year interest rate does not change.Which of the following will tend to occur?

• A)i₂t will increase by 4%
• B)i₂t will increase by 2%
• C)i₂t will increase by less than 2%
• D)i₂t will decrease by 2%

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Definitions:

Flexible Budget

A budget that adjusts or flexes with changes in volume or activity levels within a business.

Volume Variance

The difference between the expected volume of production or sales and the actual volume, affecting budget and performance analysis.

Fixed Overhead

Fixed overhead refers to the indirect costs of production that remain constant regardless of the level of output, such as rent, salaries, and insurance.

Machine Hour

A measure of the operating time of a machine, used in costing to allocate expenses based on machine use.