The expected yield. Expectation Theory: Expectation theory estimates the future interest without considering the maturity risk. According to the expectation theory, the yield curve of the investment totally depends upon the future expectation of the investors. Yield: Yield is the percentage of securities at which the return is provided by the company to its investors. Yield can be there in the form of dividend and interest.

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Chapter 6, Problem 14P

a.

Summary Introduction

To identify: The expected yield.

Expectation Theory:

Expectation theory estimates the future interest without considering the maturity risk. According to the expectation theory, the yield curve of the investment totally depends upon the future expectation of the investors.

Yield:

Yield is the percentage of securities at which the return is provided by the company to its investors. Yield can be there in the form of dividend and interest.

b.

Summary Introduction

To identify: The expected inflation rate in year 1 and year 2.

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