The Current Required Yields on One- and Two-Year Government Bonds

question 59

Multiple Choice

The current required yields on one- and two-year government bonds are i₁ = 12% and i₂ = 13%.What are the market's expectations of the one-year forward rate, f₁ (round to two decimals) ?

• A)13.50%
• B)14.00%
• C)14.50%
• D)15.00%

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Definitions:

November

The eleventh month of the year in the Gregorian calendar, usually consisting of 30 days.

Variable Cost

Outlays that fluctuate based on the level of a business's activity.

Units

A measure of quantity used to describe the amount of product, material, or service.

Sold

The past tense of sell; refers to the action of transferring ownership of a good or service to a buyer in exchange for money or other compensation.