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Calculate the expected interest rate in 2017

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Assume that the interest rate on a one-year Argentina bond that is purchased on January 1, 2016 is 2.5%. This one-year bond matures on January 1, 2017. The interest rate on a two-year Argentina bond purchased on January 1, 2016 is 3.35%. This two-year bond matures on January 1, 2018.

a. Calculate the expected interest rate in 2017.

b. If the Brazilian investor now decides to invest in a three-year Argentina bond with a 4.3% interest rate, then calculate the expected interest rate in 2018.

Reference no: EM132376273

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