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assign2.doc - FIN500 Assignment 2(individual work Total...

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FIN500 Assignment 2 (individual work) Total points: 10 Assignment 2 tests your understanding on contents in Chapter 6, 7 . Your completed Assignment 2 should be saved and submitted as a word document through the link named “Assignment 2 Submission” in Module 3. The filename should begin as assign2, then your last name and first letter of your first name. For example, if Betty Jones is submitting her answer to Assignment 2, she should save the file in word document format and name it as assign2JonesB. Part I. Multiple choice questions/problems: only one choice is correct. Each question/problem is worth 0.5 point, the total is 4 points 1. This theory argues that individual investors and financial institutions have specific maturity preferences, and to encourage buyers to hold securities with maturities other than their most preferred requires a higher interest rate. A. Liquidity Premium Hypothesis B. Market Segmentation Theory C. Supply and Demand Theory D. Unbiased Expectations Theory 2 . Unbiased Expectations Theory Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows: Using the unbiased expectations theory, what is the current (long-term) rate for four-year- maturity Treasury securities?
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