Assume That the Expectations Theory Holds and That Liquidity and Maturity

question 31

Multiple Choice

Assume that the expectations theory holds and that liquidity and maturity risk premiums are zero. The annual rate of interest on a two-year Treasury bond is 10.5 percent and the rate on a one-year Treasury bond is 12 percent. What is the expected one-year interest rate during the second year?

• A)9.0%
• B)9.5%
• C)10.0%
• D)10.5%
• E)11.0%

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Definitions:

Compensation

A psychological strategy where individuals overdevelop in one area to make up for deficits in another, often unconsciously.

Psychoanalysis

A therapeutic approach developed by Freud emphasizing unconscious processes and the resolution of internal conflicts through techniques such as dream analysis and free association.

Countertransference

A therapist's emotional entanglement with a client, often reflecting the therapist's own unresolved conflicts.

Push-button

No suitable definition related to psychology or mental health; generally refers to a mechanism activated by pressing a button.