If the Expected Path of 1-Year Interest Rates Over the Next

question 113

Multiple Choice

If the expected path of 1-year interest rates over the next five years is 1 percent,2 percent,3 percent,4 percent,and 5 percent,the expectations theory predicts that the bond with the highest interest rate today is the one with a maturity of

• A)two years.
• B)three years.
• C)four years.
• D)five years.

---

Definitions:

Calculate

Determine mathematically.

Percent Change

The extent to which a quantity has increased or decreased, expressed as a percentage.

Initial Value

The starting monetary or numerical value of an investment, account, or another financial instrument before any earnings or losses.

Reduction

The act of making something lesser in size, amount, or degree.