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Using the Rates Below, please calculate the Long-Term Spot rate from the combination below. 1 year...

Using the Rates Below, please calculate the Long-Term Spot rate from the combination below.

1 year spot rate = 3.1%

2 year forward rate = 3.6% **

Please enter rates as whole numbers (ex: 0.0235 as 2.35) **

Solutions

Expert Solution

Using Unbiased Expectation Theory,

(1 + r1,2)2 =(1 + r1,1)(1 + f2,1)

(1 + r1,2)2 = (1 + 0.031)(1 + 0.036)

r1,2 = 3.35%

jeff jeffy answered 2 years ago
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