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Suppose the interest rate on a 1-year T-bond is 5.80% and that on a 2-year T-bond is 8.60%. Assuming the pure expectations theory is correct,
Suppose the interest rate on a 1-year T-bond is 5.80% and that on a 2-year T-bond is 8.60%. Assuming the pure expectations theory is correct, what is the market's forecast for 1-year rates 1 year from now? Do not round your intermediate calculations. Round your final answer to 2 decimal places.
a. 7.20%
b. 12.14%
c. 11.47%
d. 6.84%
e. 8.49%
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