Using the pure expectations approach, calculate the implied two year rate one year from now with the following information One year spot rate 6 20 p a Two year spot rate 6 80 p a Three year spot rate 7 20 p a a The implied two year rate one year from now is higher than 7 2 b The implied two year rate one year from now is lower than 6 8 but higher than 6 2 c The implied two year rate one year from now is lower than 7 2 but higher than 6 8 d The implied two year rate one year from now is lower than 6 2 e None of the given choices is correct

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Question: Using the pure expectations approach, calculate the implied two-year rate one year from now with the following information: One-year spot rate: 6.20% p.a. Two-year spot

Using the pure expectations approach, calculate the implied two-year rate one year from now with the following information: One-year spot rate: 6.20% p.a. Two-year spot rate: 6.80% p.a. Three-year spot rate: 7.20% p.a.

The implied two-year rate one year from now is higher than 7.2%.

The implied two-year rate one year from now is lower than 6.8% but higher than 6.2%.

The implied two-year rate one year from now is lower than 7.2% but higher than 6.8%.

The implied two-year rate one year from now is lower than 6.2%.

None of the given choices is correct.

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