A Two-Year STRIPS Sells at an Interest Rate of 3

question 89

Multiple Choice

A two-year STRIPS sells at an interest rate of 3.84% and a three-year STRIPS sells at a rate of 3.97%. What is the implied one-year interest rate two years from now? Assume the rates are effective annual rates.

• A)4.23%
• B)4.36%
• C)4.41%
• D)4.45%
• E)4.50%

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