Question
Assume that the Pure Expectation Theory determines interest rates in the markets. Today's market rates for different maturities are as follows: 1 year = 3.8%
Assume that the Pure Expectation Theory determines interest rates in the markets. Today's market rates for different maturities are as follows:
1 year = 3.8%
2 years = 4.3%
3 years = 5.5%
4 years = 6.8%
5 years = 7.5%
What is the implied 2 year interest rate for investing in 3 years? Enter your answer as a percentage, without the percentage sign ('%'), and rounded to 1 decimal. For example. if your answer is 7.2134%, just enter 7.2
The correct answer is 10.6 -please show me how to do this step by step (formulas on excel are helpful as well)- thank you!
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