According to the liquidity premium theory of the term structure of interest rates, if the one-year bond rate is expected to be 4%, 7%, and 8% over each of the next three years, and if the liquidity premitum on a three-year bond is 3%, then the interest rate on a three-year bond is % (Round your response to the nearest whole number). According to the liquidity premium and preferred habitat theories of the term structure of interest rates, a flat yield curve indicates that O A. bondholders no longer prefer short-term bonds to long-term bonds. O B. future short-term interest rates are expected to fall. O C. future short-term interest rates are expected to stay the same. O D. future short-term interest rates are expected to rise.
According to the liquidity premium theory of the term structure of interest rates, if the one-year bond rate is expected to be 4%, 7%, and 8% over each of the next three years, and if the liquidity premitum on a three-year bond is 3%, then the interest rate on a three-year bond is % (Round your response to the nearest whole number). According to the liquidity premium and preferred habitat theories of the term structure of interest rates, a flat yield curve indicates that O A. bondholders no longer prefer short-term bonds to long-term bonds. O B. future short-term interest rates are expected to fall. O C. future short-term interest rates are expected to stay the same. O D. future short-term interest rates are expected to rise.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
please solve this for me correctly
Transcribed Image Text:According to the liquidity premium theory of the term structure of interest rates, if the one-year bond rate is expected to be 4%, 7%, and 8% over each of the next three years, and if the liquidity premium on a three-year bond is 3%,
then the interest rate on a three-year bond is %. (Round your response to the nearest whole number).
According to the liquidity premium and preferred habitat theories of the term structure of interest rates, a flat yield curve indicates that
O A. bondholders no longer prefer short-term bonds to long-term bonds.
B. future short-term interest rates are expected to fall.
OC. future short-term interest rates are expected to stay the same.
O D. future short-term interest rates are expected to rise.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education