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The Yield on a One-Year Bond Is Currently 4% and the Expected

Question 44

Multiple Choice

The yield on a one-year bond is currently 4% and the expected yield on one-year bonds for the next two years is 5% and 6%. If the liquidity premium is 0.5%, what is the yield on a bond with two years to maturity?


A) 4.5%
B) 5%
C) 5.5%
D) 6%

Correct Answer:

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