Observing the Following Term Structure; a US Treasury Bond Maturing

question 40

Multiple Choice

Observing the following term structure; a US treasury bond maturing in 1 year has a yield of 3% while US Treasury bond maturing in 2 years has a yield of 7%; what is the expected 1 year rate,1 year from now?

• A) 10.16%
• B) 11.00%
• C) 11.16%
• D) 11.23%

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Definitions:

Straight-Line Depreciation

A technique for distributing the expense of a physical asset across its lifespan in consistent yearly installments.

Required Rate Of Return

The rate that is generally based on the company’s cost of capital.

Operating Costs

Expenses associated with the day-to-day functions of a business, excluding costs related to production.

Salvage Value

Salvage value is the estimated residual value of an asset at the end of its useful life.