Assume the current 6-month spot rate is 1.5% and also assume that the 6-month spot rate next
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Assume the current 6-month spot rate is 1.5% and also assume that the 6-month spot rate next period can take the following two values with equal probability: 2.25% and 1.25% (the standard deviation is 0.5%). If local Expectations Theory holds, the current 12-month spot rate is ____.
A.Between 2% and 2.25%
B.Between 1.5% and 2%
C.Larger than 2.25%
D.Smaller than 1.5%
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