Suppose the interest rate on a 1-year T-bond is 5.00% and that on a 2-year T-bond is 6.90%.Assuming the pure expectations theory is correct,what is the market's forecast for 1-year rates 1 year from now? Round the intermediate calculations to 4 decimal places and final answer to 2 decimal places.
A) 7.16
B) 8.83
C) 6.63
D) 7.42
E) 8.04
Correct Answer:
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