If Investors Are Not Indifferent to Whether They Hold Long-Term

question 41

Multiple Choice

If investors are not indifferent to whether they hold long-term or short-term securities,and need a liquidity premium to hold longer term securities,an investor who needs a liquidity premium of 0.25% per annum will expect to receive _______ on a two-year investment,given the following data:
(₀i₁) 8.46% per annum
(E₁i₁) 8.55% per annum

• A) 8.51% per annum
• B) 8.63% per annum
• C) 8.80% per annum
• D) 8.88% per annum

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Definitions:

Assignment

The transfer of rights, property, or responsibilities from one party to another.

Delegation

The act of assigning responsibility or authority from one person or group to another person or group.

Promisee

In a third-party beneficiary contract, the party to the contract who owes something to the promisor in exchange for the promise made to the third party.

Principal

The initial sum of money that is invested or lent, used as the foundation for calculating interest and returns.