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The one-year spot rate is currently 2%; the expected one-year spot rate one year from now is 3%; and the expected one-year spot rate two
The one-year spot rate is currently 2%; the expected one-year spot rate one year from now is 3%; and the expected one-year spot rate two years from now is 4%. Under the Pure Expectation Theory what must today's three-year spot rate be? Suppose the three-year spot rate is actually 4%, how could you take advantage of this? Explain. Assume all rates are effective annual rate.
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