Assume that the pure expectation theory

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Reference no: EM131328121

1) Assume that the Pure Expectation Theory determines interest rates in the markets. Today's market rates for different maturities follow an interesting pattern. The spot rate for investing for 1 year is 5%. After that, the rate increases by 1% for each year. So, in general, the rate for year Y is simply 5% + 1%*(Y-1).

Given this information, what is the implied interest rate to invest for 1 year, starting in 2 years?

2) Assume that the Pure Expectation Theory determines interest rates in the markets. Today's market rates for different maturities follow an interesting pattern. The spot rate for investing for 1 year is 4%. After that, the rate increases by 1% for each year. So, in general, the rate for year Y is simply 4% + 1%*(Y-1).

Given this information, what is the implied interest rate to invest for 1 year, starting in 3 years?

Reference no: EM131328121

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