According to the Expectations Theory,what Will Be the Interest Rate

question 38

Short Answer

According to the expectations theory,what will be the interest rate on a three-year bond if a one-year bond has an interest rate of 2% and is expected to have an interest rate of 3% next year and 5% in two year? Report your answer using a percentage with two decimal places.

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Definitions:

Notes Payable

A written agreement where one party promises to pay another party a specific sum of money on a certain date or on demand.

Preferred Stock

A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock, typically with fixed dividends.

Common Equity

The percentage of a corporation's equity held by investors in the form of common shares.

Weighted Average

A calculation that takes into account the varying degrees of importance of the numbers in a data set, giving more weight to some numbers than others.