Question: Please fill in the missing values in question b. Also, please answer question C which is as follow: C. How does the one-year interest rate
Suppose the current one year interest rate is 57% One year from now, you bolieotho 0conomy wil start to slow and the one year interest rate wi fal to 47% in two years, you e ped the o m tobe in the midst of a recesson, caus ng the Federal Reserve to cut interest rates drastaly and the one year interest rate to fal to 1.7% The oreyoar interest rate will tennse to 2.7%the following year, and continue to rise by 1% per year until it returns to 5.7%, where it wil remain from then on. a. If you were certain regarding these future interest rate changes, what two-year interest rate would be consistent with these expectations? b. What current term structure of interest rates,for terms of 1 to 10 years, would be consistent with these expectations? o. How does the one-year interest rate oompare to the ten-year interest rate? a. If you were certain regarding these future interest rate changes, what two-year interest rate would be consistent with these expectations? The two-year interest rate consistent with these expectations is 5.20 %. (Round to two decimal places.) b. What current term structure of interest rates, for terms of 1 to 10 years, would be consistent with these expectalions? Fill in the missing values in the following table: (Round the FV to four decimal places and the EAR to two decimal places) EAR 70% 5 20% 402% 369% Year Future interest Rate 67% 47% 1.7% 27% 37% 47% FV from Reinvesting 10670 1.1067 1569 1.1986 12550 386%
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