Assume the Expectations Hypothesis Regarding the Term Structure of Interest

question 62

Multiple Choice

Assume the Expectations Hypothesis regarding the term structure of interest rates is correct.If the current one-year interest rate is 3% and the one-year-ahead expected one-year interest rate is 5%, then the current two-year interest rate should be:

• A)3%.
• B)5%.
• C)4%.
• D)8%.

---

Definitions:

Fair Market Value

The price at which a property would sell in a competitive and open market, reflecting the value agreed upon by a willing buyer and seller.

Financial Position

An overview of an entity's economic resources, obligations, and net worth at a point in time, typically represented by the balance sheet.

Owners' Equity

The residual interest in the assets of a business after deducting its liabilities, representing the ownership's value in the firm.

Net Worth

The total assets of an individual or company minus its total liabilities, representing the financial value of the entity.