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Suppose we have the yield and maturity information on treasury securities from a current yield curve. A 1-year T-bond currently yields 4.50% and a 3-year

Suppose we have the yield and maturity information on treasury securities from a current yield curve. A 1-year T-bond currently yields 4.50% and a 3-year T-bond yields 9.80%. Assuming the pure expectations theory is correct, what is the market's forecast for interest rates on a 2-year treasury security, 1 year from now?

a.

11.16%

b.

13.44%

c.

14.49%

d.

26.67%

e.

12.55%

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