You note the following yield curve in The Wall Street Journal.

Bond YEARS TO MATURITY YIELD TO MATURITY

A 1 4%

B 2 5.5%

C 3 5.99%

D 4 6.49%

E 5 8.70%

According to the unbiased expectations theory, what is the 2-year forward rate from now (3f2), assuming that the interest rate is compounded annually?

ANSWER CHOICES

a. 8.56%

b. 6.98%

C. 7.33%

D. 7.49%

E. 8.01%