Please explain answer. I dont understand how that equation comes up with that answer.

Suppose the interest rate on a 1-year T-bond is 3.3% and that on a 3-year T-bill is 5.2%. Assuming the pure expectations theory is correct, what is the market's forecast for 2-year rates 1 year from now? O 6.60% 6.35% 6.25% 6.15% O 6.45% Please answer step by step Show transcribed image text Expert Answer Prasad answered this 22,240 answers Was this answer helpful? 2-year bond rate in 1-year: = ((1+5.2%)^3/(1+3.396))^(1/2)-1 = 6.15% Hence, 2-year bond rate in 1-year is 6.15% *Please rate thumbs up View comments (1)