Question: One - year T - bill rates are expected to steadily increase by 2 . 5 basis points per year over the next nine years.

One-year T-bill rates are expected to steadily increase by 2.5 basis points per year over the next nine years. Determine the required interest rate on a five-year T-bond if the current one-year interest rate is 15.5%. Assume that the Expectations Theory for interest rates holds.

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