Answer to Question #262476 in Economics for yashika

Question

Q.1(a) Suppose investors prefer one-year bonds to two-year bonds and will

purchase a two-year bond only if they expect to receive an additional 2% over

the returns from holding one-year bonds. Currently, one-year bonds yield 6%,

but investors expect the yield to fall to 2% next year.

(i) Which of the three models of term structure is relevant in this case?

(ii) What is the yield on a two-year bond?

(iii) Is the yield curve flat, downward sloping or upward sloping? Explain.

(b) Write a short note on the NPA problem in the Indian Banking System?

Answer 1

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