Assume the Current One-Year Interest Rate on a Bond Is

question 54

Multiple Choice

Assume the current one-year interest rate on a bond is 2%, and the one-year expected rate a year from now is 3%. According to the expectations theory of the term structure of interest rates, the two-year interest rate is

• A) 2%.
• B) 2.5%.
• C) 3%.
• D) 5%.

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Definitions:

Z-Value

A statistic that measures the number of standard deviations a data point is from the mean of a distribution, often used in standard score calculations.

Population Proportion

A measure that represents the fraction or percentage of members in a population that exhibit a certain attribute or characteristic.

Margin of Error

An expression of the amount of random sampling error in a survey's results, indicating the range within which the true population parameter is likely to lie.

Mean Number

Typically refers to the average value of a set of numbers, calculated by dividing the sum of all numbers by the count.