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Applying the Expectations Theory, a Bank Depositor Chooses Between Purchasing

Question 43

Multiple Choice

Applying the expectations theory, a bank depositor chooses between purchasing a one- year CD paying 5 percent and a two-year CD paying 5.5 percent. If indifferent between the two, the depositor must expect one-year CDs one year from now to have a rate of


A) 6.5%
B) 4.5%
C) 6.0%
D) 5.0%

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