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Calculate expected rate of interest of a one-year investment

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Question - Using the pure expectations approach to the determination of interest rates, calculate the expected (E) rate of interest of a one-year investment that will be available in 12 months' time (1i2), given the following data:

Current rate of return on a one-year-to-maturity (0i1) instrument is 7.75% per annum

Current rate of return on a two-year maturity (0i2) instrument is 8.25% per annum.

a. 7.75% per annum

b. 8.25% per annum

c. 8.75% per annum

d. 9.25% per annum

Reference no: EM132561612

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