What are the one-year and two-year forward rates

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Reference no: EM132811680

The yields on 1-year, 2-year and 3-year, risk-free, zero-coupon bonds are 4%, 3% and 2%, respectively.

Problem a) What are the 1-year and 2-year forward rates (f1 and f2)?

Problem b) What does the expectations hypothesis tell us about the future 1-year spot interest rate one year after?

Problem c) What does the expectations hypothesis tell us about the future 1-year spot interest rate two years after?

Reference no: EM132811680

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