Assuming the Expectations Hypothesis Is Correct, and Given the Following

question 119

Essay

Assuming the Expectations Hypothesis is correct, and given the following information:
The current four-year interest rate is 5.0%
The current one-year interest rate is 4.0%
The expected one-year rate for one year from now is 5.0%
The expected one-year rate for two years from now is 5.5%
What is the expected one-year rate for three years from now? Explain.

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Definitions:

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The situation in which a firm or business achieves the highest possible profit level given its production costs and market conditions.

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