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Suppose today is January 1, 2016, and the attached file has information about four bonds. If the expectations theory is the only valid explanation for
Suppose today is January 1, 2016, and the attached file has information about four bonds. If the expectations theory is the only valid explanation for the shape of the yield curve, what is the forecasted rate for the year 2018that is, the 1-year rate for 2018 only? Assume these bonds are Treasury bonds that have no riskthere is no default risk, liquidity risk, or maturity risk.
Type of Bond Maturity Date Yield (Return)
1-year 12/31/2016 3.1%
2-year 12/31/2017 2.7
3-year 12/31/2018 3.4
4-year 12/31/2019 3.0
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