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The current interest rate on one-year bonds

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Reference no: EM131314785

1. Consider the bond market to be in equilibrium according to our complete theory of the term structure of interest rates. The current interest rate on one-year bonds is 3.0 percent, and you believe, as does everyone in the market, that in one year the interest rate on one-year bonds will be 3.5 percent. Assume that there is no term premium on a one-year bond. Suppose the term premium equals 0.75 percent ´ the number of years to maturity, for the two-year bond. The interest rate today on the two-year bond is

a. 5.00 percent.

b. 3.25 percent.

c. 4.00 percent.

d. 4.75 percent.

2. The current ratio equals current assets divided by current liabilities. Cardinal Corporation has a current ratio of 0.95. The industry average current ratio is 1.89. Cardinal Corporation appears to have ______________ relative to its industry peers.

a. good investment value

b. poor profitability

c. short-term liquidity problems

d. long-term solvency problems

e. low stock market value

Reference no: EM131314785

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