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(a) Assume that as of today (time t) the annualized two-year interest rate is 9...

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(a) Assume that as of today (time t) the annualized two-year interest rate is 9 per cent (ci2 = 9), while the one-year interest rate is 6.5 per cent. Calculate the forward rate. (Hint: (1 + iz)= (1 + i)(1 + t+11) (6) (b) From (a), suppose that a three-year security has an annualized interest rate of 10 per cent (ti3 = 10) per cent. Given this, estimate the one-year forward rate two years from now

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