Assume That the Current Yield on One-Year Securities Is 6

question 8

Multiple Choice

Assume that the current yield on one-year securities is 6 percent, and that the yield on a two-year security is 7 percent. If the liquidity premium on a two-year security is 0.4 percent, then the one-year forward rate is

• A)8.0 percent.
• B)7.6 percent.
• C)3.0 percent.
• D)7.0 percent.

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Definitions:

Automatic Stay

A legal provision that halts actions by creditors, with certain exceptions, to collect debts from a debtor who has declared bankruptcy.

Discharge of Obligations

A legal term for the act of releasing a party from their contractual obligations, typically through fulfillment, agreement, or operation of law.

Order for Relief

Legal authorization granted by a bankruptcy court that allows a debtor protection from creditors under bankruptcy laws.

Voluntary Petition

A document filed by an individual or corporation initiating a bankruptcy case of their own accord.