Suppose the interest rate on a 1-year T-bond is 5.00% and that on a 2-year T-bond is 6.90%. 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.
I don’t have a financial calculator. Please show how to solve without a financial calculator.
The market forecasts for 1 - year rates 1 year from now
=(1+6.90%)^2/(1+5%)-1 = 8.8344% or 8.83%
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Suppose the interest rate on a 1-year T-bond is 5.00% and that on a 2-year T-bond...