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

question 90

Multiple Choice

If the expected path of one-year interest rates over the next five years is 1 percent,2 percent,3 percent,4 percent,and 5 percent,then the pure expectations theory predicts that the bond with the highest interest rate today is the one with a maturity of

• A) one year.
• B) two years.
• C) three years.
• D) four years.
• E) five years.

---

Definitions:

Sample Means

The average value obtained from a sample, used as an estimate of the population mean.

Null Hypothesis

An initial assumption made for statistical analysis that suggests no significant effect or relationship exists between variables.

Proportion

A measure that represents a part of a whole as a fraction or percentage.

T Distribution

A probability distribution used in statistics for estimating population parameters when the sample size is small and the population variance is unknown.