Interest rates on 1-year, 2-year, and 3-year Treasury bills are 5%, 6%, and 7% respectively. Assume that the pure expectations theory holds and that the market is in equilibrium. Which of the following statements is correct??
A. ?The maturity risk premium is positive.
B. ?Interest rates are expected to fall over the next two years.
C. ?The market expects one-year rates to be 7% one year from today.
D. ?The default risk premium is highest for Year 2.
E. ?The liquidity risk premium is highest for Year 1.
Answer: C
You might also like to view...
In horizontal analysis, each item is expressed as a percentage of the
a. base year figure b. retained earnings figure c. total assets figure d. net income figure
The Rugman and D'Cruz's flagship model is evident in the strategies of all but one of the following businesses:
A) Ford. B) Volkswagen. C) IKEA. D) Benetton. E) Microsoft.
Determining whether a regulated company or person is complying with laws and regulations cannot be a function of administrative agencies because of Congressional prohibitions
a. True b. False Indicate whether the statement is true or false
A McDonald's Big Mac value meal consists of a Big Mac sandwich, large Coke, and a large fries. Assume that there is a competitive market for McDonald's food items and that McDonald's sells the Big Mac value meal for $4.59
Consider the following prices from a McDonald's Restaurant: Big Mac Sandwich $2.68 Large Coke $1.45 Large Fries $1.13 Does an arbitrage opportunity exists and if so how would you exploit it and how much would you make on one value meal? A) Yes, buy a value meal and then sell the Big Mac, Coke, and fries to make arbitrage profit of $0.67. B) No, no arbitrage opportunity exists. C) Yes, buy a Big Mac, Coke, and fries, then sell a value meal to make arbitrage profit of $1.34. D) Yes, buy a Big Mac, Coke, and fries, then sell a value meal to make arbitrage profit of $0.67.