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How can you take advantage of these rates to earn a riskless

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Reference no: EM131127395

You observe the following market interest rates, for both borrowing and lending:

One-year rate = 5%

Two-year rate = 6%

One-year rate one year from now = 7.25%

How can you take advantage of these rates to earn a riskless profit? Assume that the expectations theory for interest rates holds. 

Reference no: EM131127395

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