Question: Question 7 10 pts (This problem also has three-parts.) Problem#3 Part A: Suppose that in the fixed-income securities market, the one-year, two-year, and three-year spot

Question 7 10 pts (This problem also has three-parts.) Problem#3 Part A: Suppose that in the fixed-income securities market, the one-year, two-year, and three-year spot interest rates are 7.000%, 7.250%, and 7.500%, respectively. [That is, RMrkto , = 7.000%, RMrko2 = 7.250% , and RMrkto, 3 = 7.500%. ] As per the no-arbitrage principle, what is the theoretical value of one-year forward interest rate two-years from now? That is, what is the theoretical value of F2,1 (F he 2, 1)? Just to remind you that, all the interest rates in this module are annualized continuously compounded. O 8.000% O 8.125% O 7.875% O 7.750% O 7.250% O 7.500%

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