If the Expected Path of One-Year Interest Rates Over the Next

question 21

Multiple Choice

If the expected path of one-year interest rates over the next four years is 5 percent,4 percent,2 percent,and 1 percent,then the pure expectations theory predicts that today's interest rate on the four-year bond is

• A) 1 percent.
• B) 2 percent.
• C) 4 percent.
• D) none of the above.

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