Question
Assume that the Pure Expectation Theory determines interest rates in the markets. Today's market rates for different maturities follow an interesting pattern. The spot rate
Assume that the Pure Expectation Theory determines interest rates in the markets. Today's market rates for different maturities follow an interesting pattern. The spot rate for investing for 1 year is 4%. After that, the rate increases by 1% for each year. So, in general, the rate for year Y is simply 4% + 1%*(Y-1).
Given this information, what is the implied interest rate to invest for 1 year, starting in 4 years?
Enter your answer as a percentage, rounded to 1 decimal, and omitting the '%' sign. For example, if your answer is 0.0123456, this is equivalent to 1.23456%, so just enter 1.2
(the correct answer is 12.1 - please show me how to do this step by step- excel formulas are welcomed)- thank you!
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