Question

Suppose the interest rate on a 1-year bond is 2.45% and that on a 2-year T-bond...

Suppose the interest rate on a 1-year bond is 2.45% and that on a 2-year T-bond is 2.85%. Assuming the pure expectations theory is correct, what is the market's forecast for 1-year rates 1 year from now. Round the intermediate calculations to 4 decimal places and final answer to 2 decimal places.

Answer choices:

A. 3.25%

B. 3.90%

C. 2.95%

D. 3.15%

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