12. Consider an example where we can borrow money today for one year at 5%; y0,150.05. Suppose...
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12. Consider an example where we can borrow money today for one year at 5%;
y0,150.05. Suppose that we are able to obtain a commitment to obtain a one-year loan one year from now at an interest rate of 8%. Thus, the one-year forward rate on a loan originated in year equals 8%. According to the pure expectations theory, what is the two-year spot rate of interest y0,2?
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