Suppose We Observe the Following Rates: ₁R₁ = 12%, ₁R₂

question 51

Multiple Choice

Suppose we observe the following rates: ₁R₁ = 12%, ₁R₂ = 15%. If the unbiased expectations theory of the term structure of interest rates holds, what is the one-year interest rate expected one year from now, E(₂r₁) ?

• A) 13.5%
• B) 14.2%
• C) 15.6%
• D) 18.0%

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