a. Assume that as of today, the annualized two-year interest rate is 13 percent, while the one-year
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a. Assume that as of today, the annualized two-year interest rate is 13 percent, while the one-year interest rate is 12 percent. Use this information to estimate the one-year forward rate.
b. Assume that the liquidity premium on a two-year security is 0.3 percent. Use this information to estimate the one-year forward rate.
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