The one-year Treasury has a yield to maturity of 6% and the two-year Treasury has a yield to maturity of 7.5%. According to the expectations hypothesis, the expected one-year interest rate one year from now should be __________.

A) 7%

B) 8%

C) 9%

D) 10%

Answer: C. (1+7.5%)^2 = (1+6%)(1+f) => f = (1+7.5%)^2/(1+6%)-1 = 9%

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