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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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