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The bank forecasts the following one-year interest rates one, two, and three years in the future: 4.25%, 4.80%, and 7.00%. The current one-year interest rate

The bank forecasts the following one-year interest rates one, two, and three years in the future: 4.25%, 4.80%, and 7.00%. The current one-year interest rate is 4.20%. Estimate the annual four-year interest rate using the expectations theory.

A. 5.06%

B. 5.75%

C. 6.78%

D. 21.81%

Answer Key:A

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