Maturity. YMT 1 year 7% 2 year 8% 3 years. 9% 17. According to the expectation t
ID: 2787620 • Letter: M
Question
Maturity. YMT 1 year 7% 2 year 8% 3 years. 9% 17. According to the expectation theory, investors a. expect interest rates to rise in future b. expect interest rates to be flat in future c. expect interest rates to fall in future bonds with longer terms as a compensation for lower agdiey e. None of the above options is correct 18. If market expectations are accurate, what will be the YTM of & 2 year 2 yewrs it coupon bond next year? a. 9.01% b. 9.51% c. 10.01% d. 13.02% e. None of the above options is correct 19. Which oftt
Explanation / Answer
17. d requires higher yield for bonds with longer terms as compensation for lower liquidity
Reason: According toExpectations theory, long-term investors will choose to purchase or not to purchase fixed income instruments based on whether forward interest rates are more or less favorable than current short-term interest rates.
18. a) 9.01%