Unbiased Expectations Theory Suppose We Observe the Following Rates: ₁R₁

question 62

Multiple Choice

Unbiased Expectations Theory Suppose we observe the following rates: ₁R₁ = 6%, ₁R₂ = 7.5%. 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) 6.75%
• B) 7.50%
• C) 9.02%
• D) 13.5%