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fill in the missing values in the table. Suppose the current one-year interest rate is 6.0%. One year from now, you believe the economy will
fill in the missing values in the table.
Suppose the current one-year interest rate is 6.0%. One year from now, you believe the economy will start to slow and the one-year interest rate will fall to 5.0%. In two years, you expect the economy to be in the midst of a recession, causing the Federal Reserve to cut interest rates drastically and the one-year interest rate to fall to 2.0%. The one-year interest rate will then rise to 3.0% the following year, and continue to rise by 1% per year until it returns to 6.0%, where it will remain from then on. a. If you were certain regarding these future interest rate changes, what two-year interest rate would be consistent with these expectations? b. What current term structure of interest rates, for terms of 1 to 10 years, would be consistent with these expectations? c. How does the one-year interest rate compare to the ten-year interest rate? 1 N Fill in the missing values in the following table: (Round the FV to four decimal places and the EAR to two decimal places.) Year Future Interest Rate FV from Reinvesting EAR 6.0% 1.0600 6.00% 5.0% 1.1130 5.50% 3 2.0% 4.32% 4 3.0% 1.1693 3.99% 4.0% 1.2161 6 5.0% 1.2769 4.16% 7 6.0% 4.42% 3 5 8 6.0% 1.4347 4.62% 9 6.0% 1.5208 % 10 6.0% 1.6121 4.89%Step by Step Solution
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