Question: The current 2-year spot rate is 4% and current 5-year spot rate is 5.5%. According to the pure expectation theory of the term structure of

The current 2-year spot rate is 4% and current 5-year spot rate is 5.5%. According to the pure expectation theory of the term structure of interest rates, what is the forward rate for 1-year securities beginning three years from today?

A) 6.44%

B) 7.79%

C) 8.23%

D) 9.58%

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