The One-Year Spot Rate Is Currently 4%; the One-Year Spot

question 49

Essay

The one-year spot rate is currently 4%; the one-year spot rate one year from now will be 3%; and the one-year spot rate two years from now will be 6%. Under the unbiased expectations theory, what must today's three-year spot rate be? Suppose the three-year spot rate is actually 3.75%, how could you take advantage of this? Explain.

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Definitions:

Medicare Benefits

Government-funded health insurance benefits available to eligible individuals, typically those who are 65 or older, or those with certain disabilities.

Coinsurance

A percentage that a patient is responsible for paying for each service after the deductible has been met.

Deductible

The amount you pay for health care services before your health insurance begins to pay.

Assignment

The allotment or designation of a task, duty, or responsibility to someone.