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Suppose the interest rate on a 1-year T-bond is 5.0% and that on a 2-year T-bond is 6.0%. Assume that the pure expectations theory is

Suppose the interest rate on a 1-year T-bond is 5.0% and that on a 2-year T-bond is 6.0%. Assume that the pure expectations theory is NOT valid, and the MRP is zero for a 1-year T-bond but 0.4% for a 2-year bond. What is the equilibrium market forecast for 1-year rates 1 year from now? mutiple choice answer below

6.28%

6.39%

6.50%

6.61%

6.72%

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