Assume that the current one- year rate is 5% and the two- year rate is 9%. Given this information, the one- year rate expected one year from now is:

Question

Quizplus · Accepted Answer

The expected one-year rate one year from now can be calculated using the formula for forward rates: (1 + two-year rate)^2 = (1 + current one-year rate) * (1 + expected one-year rate one year from now). Solving for the expected rate gives approximately 13%.

Assume That the Current One- Year Rate Is 5% and the Two-