Assume investors are indifferent among security maturities. Today, the annualized 2-year interest rate is 2.20 percent, and the 1-year interest rate is 2 percent. What is theforward rate according to the pure expectations theory?O 2.25%O 2.00%O 2.40%O 2.20% Assume that the current yield on one-year securities is 7 percent, and that the yield on atwo-year security is 8 percent. If the liquidity premium on a two-year security is 0.6percent, then the one-year forward rate is approximately:O 7.6 percent.O 8.6 percent.O 8.4 percent.O 7.4 percent.

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Assume investors are indifferent among security maturities. Today, the annualized 2- year interest rate is 2.20 percent, and the 1-year interest rate is 2 percent. What is the forward rate according to the pure expectations theory? O 2.25% O 2.00% O 2.40% O 2.20%

Assume investors are indifferent among security maturities. Today, the annualized 2- year interest rate is 2.20 percent, and the 1-year interest rate is 2 percent. What is the forward rate according to the pure expectations theory? O 2.25% O 2.00% O 2.40% O 2.20%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Interest Rate

When you deposit your money with the bank, the deposit earns you some extra money at the end of the specific period – something more than what you deposited. That amount of money that the bank pays you for keeping the money with the bank is the “interest” and the percentage at which the bank pays you for your amount is called the “interest rate”.

Question

Assume investors are indifferent among security maturities. Today, the annualized 2-
year interest rate is 2.20 percent, and the 1-year interest rate is 2 percent. What is the
forward rate according to the pure expectations theory?
O 2.25%
O 2.00%
O 2.40%
O 2.20%

Assume that the current yield on one-year securities is 7 percent, and that the yield on a
two-year security is 8 percent. If the liquidity premium on a two-year security is 0.6
percent, then the one-year forward rate is approximately:
O 7.6 percent.
O 8.6 percent.
O 8.4 percent.
O 7.4 percent.

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