If Short-Term Interest Rates Over the Next Three Years Are

question 5

Multiple Choice

If short-term interest rates over the next three years are assumed to be i? = 4%, i? = 5.5%, and i? = 4%, what do you expect the three-year rate to be under the expectations theory?

• A)5)5%
• B)5)0%
• C)4)0%
• D)4)5% plus a term premium
• E)5)5% minus a term premium

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