Suppose we have the yield and maturity information on treasury
securities from a current yield curve. A 1-year T-bond currently
yields 4.50% and a 3-year T-bond yields 9.80%. Assuming the pure
expectations theory is correct, what is the market's forecast for
interest rates on a 2-year treasury security, 1 year from now?
a.
11.16%
b.
13.44%
c.
14.49%
d.
26.67%
e.
12.55%