The Current Required Yields on One- and Two-Year Government Bonds

question 64

Multiple Choice

The current required yields on one- and two-year government bonds are i₁ = 12 per cent and i₂ = 13 per cent. What are the market's expectations of the one-year forward rate, f₁ (round to two decimals) ?

• A) 13.50 per cent
• B) 14.00 per cent
• C) 14.50 per cent
• D) 15.00 per cent

---

Definitions:

Germinal

Relating to the initial stage of development after fertilization, in which cell division and implantation in the uterus occur.

Embryonic

Pertaining to the initial stages of development after fertilization and before fetal stage in organisms.

Fetal Periods

Stages of human development in the womb, from conception to birth, marked by rapid growth and organ formation.

Trimesters

The three periods of approximately three months each into which pregnancy is divided, marking different phases of fetal development.