Question 8 (1 point)

If the current 1-year interest rate is 3% and the current interest rate on a 2-year bond is 4%, what is the expected 1-year rate starting a year from today? (NOTE: This is different from the previous questions, so read the question carefully!)

Question 8 options:

	3%
	3.5%
	5%
	7%

NOTE: Read the question carefully to see what information you are given and what you are trying to find.

You observe that currently a 1-year bond has an interest rate of 1.40% while a 2-year bond has an interest rate of 1.60%. This means that, according to the expectations theory (no liquidity premium), market participants expect the 1-year interest rate in one year from now to be ___%:

Write your answer with 2 decimals and no % or $ sign. Ex: 5.1% should be written as 5.10

Note that you could end up with a negative interest rate here due to how this is programmed. A negative interest rate is not very realistic, but show that you know the principles and write it up as negative. Ex: Negative 5.1% should be written as -5.10

Your Answer:

Question 9 options:

Answer