The Yield Curve Is Flat at 6% Per Annum

question 2

Multiple Choice

The yield curve is flat at 6% per annum.What is the value of an FRA where the holder receives interest at the rate of 8% per annum for a six-month period on a principal of $1,000 starting in two years? All rates are compounded semiannually.

• A) $9.12
• B) $9.02
• C) $8.88
• D) $8.63

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Definitions:

Loanable Funds

The resources available for borrowing in the financial markets, influenced by savings, borrowing, and the government’s fiscal policies.

Demand For Loanable Funds

The desire to borrow money, driven by (among other factors) investments and the consumer desire for purchasing goods or services on credit.

Open-Economy Macroeconomic Model

A theoretical framework that analyzes the economy of a country in the context of its interactions with other countries, including trade, investment, and financial flows.

Supply Of Loanable Funds

The total amount of funds available for borrowing in the financial markets, determined by savings and the monetary policy.