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PROBLEM 2 (20 pts): Given the following rates: 1?year CD (spot): 2% 1?year CD, 1?year forward: 3% 1?year CD, 2?years forward: 4% 1?year CD, 3?years

PROBLEM 2 (20 pts): Given the following rates: 1?year CD (spot): 2% 1?year CD, 1?year forward: 3% 1?year CD, 2?years forward: 4% 1?year CD, 3?years forward: 4.5% 1?year CD, 4?years forward: 5% Compute the spot rate on 3?year CDs. State your answer as a percentage with 3 digits after the decimal point.

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