Suppose the Expected One-Month Rates of Return Are 3% P $3.89 \%$

question 8

Multiple Choice

Suppose the expected one-month rates of return are 3% p.a. ,4.5% p.a.and 7% p.a.for the month ending in one,two and three months' time respectively.According to the expectations theory,what is the three-month nominal yield?

• A) \( 3.89 \% \)
• B) \( 3.92 \% \)
• C) \( 4.17 \% \)
• D) \( 4.85 \% \)

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Definitions:

Time Lags

The delays between the initiation and the effect of an economic policy or other financial actions, impacting their effectiveness.

Passive Approach

An investment strategy that minimizes buying and selling actions, favoring long-term holding and typically indexed investments.

Policy Lags

The delay between the time a policy is enacted and the time it has an impact on the economy.

Discretionary Policy

Discretionary policy involves government and central banking measures that are actively implemented to influence economic conditions, such as adjusting taxes or changing interest rates.