Suppose We Observe the Following Rates: ₁R₁ = 12 Percent

question 113

Multiple Choice

Suppose we observe the following rates: ₁R₁ = 12 percent, ₁R₂ = 15 percent. If the unbiased expectations theory of the term structure of interest rates holds, what is the one-year interest rate expected one year from now, E(₂r₁) ?

• A) 13.5 percent
• B) 14.2 percent
• C) 15.6 percent
• D) 18.0 percent

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Definitions:

Working Capital

Current assets minus current liabilities, indicating the liquidity available for a company's day-to-day operations.

Taxable Income

The portion of income subject to taxation by governmental authorities after accounting for deductions and exemptions.

Working Capital

Working capital refers to the difference between a company's current assets and current liabilities, indicating the liquidity and short-term financial health of the business.

Taxable Income

The portion of an individual's or corporation's income used to determine how much tax is owed to the government.