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The 5-year spot interest rate is 4.53%, the 2-year forward rate expected 5 years from now...

The 5-year spot interest rate is 4.53%, the 2-year forward rate expected 5 years from now has been estimated to be 4.61%. What is the other spot rate you need to know to find the forward rate given above using the pure expectations theory? Round to the nearest 0.01%. E.g., if your answer is 5.783%, record it as 5.78.

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Answer #1
Annualized Forward rate of 2 years 5 years from now =((1+7 Year rate)^7/(1+5 Year rate)^5)^1/2-1
4.61=((1+N2 rate)^7/(1+0.0453)^5)^1/2-1
N2 rate% = 4.55
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