Question
Suppose the interest rate on a 1-year T-bond is 1.45% and that on a 2-year T-bond is 2.80%.Assume that the pure expectations theory is NOT
Suppose the interest rate on a 1-year T-bond is 1.45% and that on a 2-year T-bond is 2.80%.Assume that the pure expectations theory is NOT valid, and the MRP is zero for a 1-year T-bond but 0.20% for a 2-year bond.What is the equilibrium market forecast for 1-year rates 1 year from now?
a.2.3500%
b.3.0565%
c.3.7630%
d.4.1500%
e.4.5275%
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Foundations of Financial Management
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
10th Canadian edition
978-1259024979
