A one-year bond has an interest rate of 3% and is expected to fall to 2.5% next year and 2% in two years. The term premium for a two-year bond is 0.3% and for a three-year bond is 0.5%
What are the interest rates on a two-year bond and three-year bond according to the liquidity premium theory?
A two-year bond will have an interest rate of (3% + 2.5%)/2 + 0.3% = 3.05%. A three-year bond will have an interest rate of (3% + 2.5%+2%)/3 + 0.5% = 3%.
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A) competition in laxity. B) depositor supervision. C) regulatory arbitrage. D) a dual banking system.
A decrease in the price of eggs, all other things unchanged, will result in a(n):
A) increase in the demand for eggs. B) increase in the supply of eggs. C) greater quantity of eggs supplied. D) greater quantity of eggs demanded.
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What will be an ideal response?
Underwriting involves
A) insuring the life or health of individuals. B) guaranteeing a price for new capital to the issuing firm. C) selling stock more cheaply than conventional stockbrokers. D) issuing stock and using the proceeds to buy bonds.