Suppose the Interest Rate on a 1-Year T-Bond Is 5

question 65

Multiple Choice

Suppose the interest rate on a 1-year T-bond is 5.0% and that on a 2-year T-bond is 7.0%.Assuming the pure expectations theory is correct,what is the market's forecast for 1-year rates 1 year from now?

• A)7.36%
• B)7.75%
• C)8.16%
• D)8.59%
• E)9.04%

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