If the Spot Interest Rate on a Prime-Rated One-Month CD

question 108

Multiple Choice

If the spot interest rate on a prime-rated one-month CD is 6 percent today and the market rate on a two-month maturity prime-rated CD is 7 percent today, the implied forward rate on a one-month CD to be delivered one month from today is

• A)9 percent.
• B)11 percent.
• C)18 percent.
• D)10 percent.
• E)8 percent.

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Definitions:

Synergistic Interaction

A situation where the combined effect of two or more factors exceeds the sum of their individual effects.

Hydrogen Bonds

A weak bond between two molecules resulting from an electrostatic attraction between a proton in one molecule and an electronegative atom in the other.

Time Delay

The period between the initiation of an action and its effect or outcome, often used in reference to system responses in technology, physics, or communication.

Ph

A scale used to specify the acidity or basicity of an aqueous solution, with values ranging from 0 (highly acidic) to 14 (highly basic), and 7 being neutral.