If a One-Year Bond Currently Yields 4% and Is Expected

question 69

Multiple Choice

If a one-year bond currently yields 4% and is expected to yield 6% next year, the Liquidity Premium Theory suggests the yield today on a two-year bond will be:

• A)More than 4% but less than 5%.
• B)5%.
• C)4%.
• D)More than 5%.

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Definitions:

Three-Dimensional Objects

Objects that have depth, width, and height, enabling them to exist in a space that has three dimensions.

Widespread Storage

The distribution and retention of information or physical items across a broad spectrum of locations or systems.

Hippocampus

A major component of the brain in humans and other vertebrates, involved in memory formation and spatial navigation.

Schemata

Mental structures that organize past experiences and provide a framework for understanding future ones.