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:

Direct Method

A costing method primarily used in cost accounting that allocates service department costs directly to production departments without any intermediate allocations.

Prepaid Expense

Payments made for goods or services to be received in the future, considered as an asset on the balance sheet until used or consumed.

Accrued Liabilities

Obligations that a company has incurred, for which it has not yet paid cash or issued payment during the accounting period.

Direct Method

An approach in cost accounting used to allocate service department costs directly to producing departments without distributing service costs between service departments.