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Assume that the pure expectations theory of the term structure is corrext. The interest rate today on a 9-year security is 6.30%, and the interest
Assume that the pure expectations theory of the term structure is corrext. The interest rate today on a 9-year security is 6.30%, and the interest rate today on a 15-year security is 7.80%. Finally, the interest rate on a 3 year security to be bought at year 9 and held over years 10, 11 and 12 is 6.80 percent. Determine the average annual return that investors today must expect that they will receive from investing in a 3-year security in 12 years (that is, buying the security at year 12 and holding it over years 13, 14 and 15).
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