Using the Pure Expectations Approach to the Determination of Interest

question 20

Multiple Choice

Using the pure expectations approach to the determination of interest rates,calculate the expected (E) rate of interest of a one-year investment that will be available in 12 months' time (₁i₁) ,given the following data:
Current rate of return on a one-year-to-maturity (₀i₁) instrument:7.75% per annum
Current rate of return on a two-year maturity (₀i₂) instrument:8.25% per annum

• A) 7.75% per annum
• B) 8.25% per annum
• C) 8.75% per annum
• D) 9.25% per annum

---

Definitions:

Tolerance For Caffeine

The adaptation of the body to the effects of caffeine, requiring increased amounts to achieve the same physiological results.

Caffeine Withdrawal

Symptoms that occur when a person suddenly stops consuming caffeine after a period of prolonged intake.

"Buzz"

"Buzz" refers to the excitement or hype generated around a particular topic, product, or event, often driven by media attention or word of mouth.

Mild Hallucinations

Sensory experiences that appear real but are created by the mind, often less intense or disturbing than full-blown hallucinations.