Suppose 1-Year Treasury Bonds Yield 4

question 16

Multiple Choice

Suppose 1-year Treasury bonds yield 4.00% while 2-year T-bonds yield 4.40%.Assuming the pure expectations theory is correct,and thus the maturity risk premium for T-bonds is zero,what is the yield on a 1-year T-bond expected to be one year from now? Round the intermediate calculations to 4 decimal places and final answer to 2 decimal places.

• A) 4.80
• B) 5.71
• C) 3.79
• D) 5.09
• E) 5.23

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Definitions:

Volume Of Operations

The scale or magnitude of the business activities that a company carries out in a specific period.

Sunk Costs

Costs that have already been incurred and cannot be recovered, and thus should not be considered in new decision making.

Financing Costs

Expenses incurred by a company to finance its operations or to raise capital, such as interest payments on loans.

Inflation Effects

The impact of the general increase in prices and fall in the purchasing value of money on financial instruments and investments.