Assume That the Bond Market Is in Equilibrium

question 31

Multiple Choice

Assume that the bond market is in equilibrium.The current interest rate on one-year bonds is 5 percent, the interest rate on one-year bonds, one year from now is 6 percent, and in two years the interest rate on one-year bonds will be 6.5 percent.Assume that there is no term premium on a one-year bond.If the term premium equals 0.5 percent × the number of years to maturity, for two-year bonds and three-year bonds.The interest rate today on the two-year bond is and the interest rate today on a three-year bond is .

• A)5.5 percent; 5.8 percent
• B)6.0 percent; 6.3 percent
• C)6.2 percent; 6.8 percent
• D)6.5 percent; 7.3 percent

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Definitions:

Base Wage

The initial rate of pay that an employee receives, excluding additional compensation such as bonuses, overtime, or allowances.

Incentive Compensation Systems

Payment programs designed to motivate employees' performance by aligning their incentives with the organization's goals, typically through bonuses, profit sharing, or stock options.

Work Motivation

The drive or incentive that pushes individuals to attain work-related goals or engage in work tasks.

Gain-sharing Plan

is a system in which employees receive a share of the profits based on the performance of their company or department, intended to increase productivity and align employees' interests with those of the organization.