Consider the following hypothetical situation.The interest rate on a two-year bond today is 7.5 percent and the interest rates on two one-year bonds are 3 percent and 4 percent respectively.The term premium earned by the investors is
A)5 percent.
B)4 percent.
C)4.25 percent.
D)6 percent.

Question

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The Answer of Consider the following hypothetical situation.The interest rate on a two-year bond today is 7.5 percent and the interest rates on two one-year bonds are 3 percent and 4 percent respectively.The term premium earned by the investors is
A)5 percent.
B)4 percent.
C)4.25 percent.
D)6 percent.

Consider the Following Hypothetical Situation