Assume the Expectation Hypothesis Regarding the Term Structure of Interest

question 41

Multiple Choice

Assume the Expectation Hypothesis regarding the term structure of interest rates is correct. Then, if the current one-year interest rate is 4% and the two-year interest rate is 6%, then investors are expecting:

• A) The future one-year rate to be 4%
• B) The future one-year rate to be 8%
• C) The future one-year rate to be 6%
• D) The future one-year rate to be 5%

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