The Yield on a One-Year Bond Is 6% Today and Is

question 66

Multiple Choice

The yield on a one-year bond is 6% today and is expected to be 8.5% next year.Based on the expectations theory,what is the yield of a two year bond today?

• A) 15.01%
• B) 12.68%
• C) 5.67%
• D) 7.24%

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Definitions:

Bond Premium

The amount by which the market price of a bond exceeds its face value, typically occurring when the bond's interest rate is higher than current market rates.

Fair Value Through Profit

A financial accounting treatment where changes in fair value of assets or liabilities are recorded in the profit or loss for the period.

Short-Term Investments

Investments that are expected to be converted into cash within one year and are often seen in the form of stocks, bonds, or certificates of deposit held by a company.