Suppose We Observe the Following Rates: ₁R₁ = 6 Percent

question 20

Multiple Choice

Suppose we observe the following rates: ₁R₁ = 6 percent, ₁R₂ = 7.5 percent. If the unbiased expectations theory of the term structure of interest rates holds, what is the one-year interest rate expected one year from now, E(₂r₁) ?

• A) 6.75 percent
• B) 7.50 percent
• C) 9.02 percent
• D) 13.5 percent

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Definitions:

Determinism

The philosophical concept that all events, including moral choices, are determined completely by previously existing causes.

Psychodynamic Theory

A psychological perspective that analyzes how behavior springs from unconscious drives and conflicts.

Superego

The superego is part of Freud's psychoanalytic theory, representing the ethical component of personality and providing moral standards for behavior.

Id

In psychoanalytic theory, the part of the personality that contains our basic, instinctual drives and operates according to the pleasure principle.