The Market Rate of Interest on 2 Year Bonds Is

question 50

Multiple Choice

The market rate of interest on 2 year bonds is 6.25% while the rate on a one year bond maturing on one year is 5.50%. The forward rate on a one year bond one year from now is 6.5%. The liquidity premium to induce investors to hold the 2 year bond is:

• A) 0.25%.
• B) 0.005%.
• C) 0.125%.
• D) 0.50%.

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Definitions:

Outstanding

Exceptionally good or prominently distinguished; can also refer to something that is yet to be paid, completed, or resolved.

Insurance Policy

A contract between an individual or entity and an insurance company, detailing the terms for the payment of claims in the event of loss.

War Zone

An area where armed conflict is taking place, often recognized as such by military authorities.

Killed

The action of causing the death of a living entity, whether intentionally or unintentionally.