Suppose the interest rate on a 1-year T-bond is 5.00% and that on a 2-year...
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Suppose the interest rate on a 1-year T-bond is 5.00% and that on a 2-year T-bond is 4.10%. Assume that the pure expectations theory is NOTvalid, and the MRP is zero for a 1-year T-bond but 0.40% for a 2-year bond. What is the yield on a 1-year T-bond expected to be one year from now? Round the intermediate calculations to 4 decimal places and final answer to 2 decimal places. ____
| A. | 2.80 | |
| B. | 2.37 | |
| C. | 2.88 | |
| D. | 2.42 | |
| E. | 2.03 |
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