Assume That Today, the Annualized Two-Year Interest Rate Is 12

question 5

Multiple Choice

Assume that today, the annualized two-year interest rate is 12 percent, and the one-year interest rate is 9 percent. A three-year security has an annualized interest rate of 14 percent. Whatisthe one-year forward rate two years from now?

• A) 12.67 percent
• B) 113 percent
• C) 195 percent
• D) 15.67 percent
• E) none of the above

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Definitions:

Funds

Financial resources set aside for a specific purpose or allocated to particular entities or projects.

Financial Plan

A comprehensive evaluation of an individual's or organization's current pay and future financial state by using currently known variables to predict future income, asset values, and withdrawal plans.

Additional Assets

Assets acquired by a business or individual that augment the existing resources, often enhancing operational capacity or value.

Future Periods

Time frames that have not yet occurred, often used in planning and forecasting.