Multiple Choice
Suppose the interest rate on a 1-year T-bond is 5.00% and that on a 2-year T-bond is 6.00%.Assume that the pure expectations theory is NOT valid,and the MRP is zero for a 1-year T-bond but 0.40% for a 2-year bond.What is the yield on a 1-year T-bond expected to be one year from now?
A) 5.32%
B) 5.60%
C) 5.89%
D) 6.20%
E) 6.51%
Correct Answer:
Verified
Correct Answer:
Verified
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