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(Unbiased expectations theory) Currently you have $90,000 that you would like to invest for 2 years and are considering buying a government security maturing in
(Unbiased expectations theory) Currently you have $90,000 that you would like to invest for 2 years and are considering buying a government security maturing in 1 year that pays 6% annually. If you do this, you will also have to purchase another 1-year security at the end of the first year. The alternative is to invest in a government security that matures in 2 years; currently, 2-year government securities are paying 6.5% annually. If you invest your money for 1 year and then after 1 year reinvest it for another year, what rate will you have to earn in order to make the two alternatives equal? The rate you will have to eam in order to make the two alternatives equal is %. (Round to three decimal places.)
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