Question
Suppose the interest rate on a 1-year T-bill is 4.0% and that on a 3-year T-note is 6.5%. Assume that the pure expectations theory is
Suppose the interest rate on a 1-year T-bill is 4.0% and that on a 3-year T-note is 6.5%. Assume that the pure expectations theory is NOT valid, and the MRP is zero for a 1-year T-bill but 0.8% for a 3-year note. What is the equilibrium market forecast for 2-year rates 1 year from now?
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Cost Benefit Analysis
Authors: Harry F. Campbell, Richard P.C. Brown
3rd Edition
1032320753, 9781032320755
