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Suppose we observe the following rates: 1 R 1 = 6 percent, 1 R 2 = 7.5 percent. If the unbiased expectations theory of the
Suppose we observe the following rates: 1R1 = 6 percent, 1R2 = 7.5 percent. If the unbiased expectations theory of the term structure of interest rates holds, what is the one-year interest rate expected one year from now, E( 2r1)?
A. 7.50 percent
B. 6.75 percent
C. 13.5 percent
D. 9.02 percent
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