Consider the following term structure of interest rates: 6 month rate 4.2%, twelve month rate 4.1%, eighteen month rate 4.3%, two year rate 4.35%. Using the unbiased expectations theory of interest rate, what is your prediction of the six month interest rate which will apply in six months time? What's is your prediction of the one-year interest rate which will apply in six months time?

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As per expectations theory investing for 1 year at the 1year rate should result in the same ending v... View the full answer