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What is the equilibrium market forecast

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Reference no: EM132839110

Question - Suppose the interest rate on a 1-year T-bond is 1.40% and that on a 2-year T-bond is 3.00%. Assume that the pure expectations theory is NOT valid, and the MRP is zero for a 1-year T-bond but 0.25% for a 2-year bond. What is the equilibrium market forecast for 1-year rates 1 year from now?

Reference no: EM132839110

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