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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