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:

W-2 Income

Earnings reported through a Form W-2, showing the total income and taxes withheld from an employee's paycheck by their employer.

Impute Interest

The process of assigning an implied interest rate to an interest-free or below-market interest loan, which then becomes taxable under the Internal Revenue Code.

Deferred Payment

An arrangement that allows payment to be made at a later date, often used in installment purchases or loans.

Group-Term Life Insurance

A type of life insurance where coverage is provided to a group of people by an employer or association, often at a lower cost than individual policies.