A Two-Year STRIPS Sells at an Interest Rate of 4

question 62

Multiple Choice

A two-year STRIPS sells at an interest rate of 4.84 percent and a three-year STRIPS sells at a rate of 4.97 percent. What is the implied one year interest rate two years from now? Assume the rates are effective annual rates.

• A) 5.23 percent
• B) 5.36 percent
• C) 5.41 percent
• D) 5.45 percent
• E) 5.50 percent

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Definitions:

Tariff Revenue

Income generated by the government through the imposition of taxes on imported goods.

Tariff

A tax imposed by a government on imported or exported goods to control trade flows, raise revenue, or protect domestic industries.

United States

A country in North America comprising 50 states, known for its significant influence on global economics and politics.

Domestic Supply

The total amount of a product or service that is produced within a country and available for purchase by the domestic market.