Fiona has initiated a project to establish a company Web site for interactive electronic commerce that encourages customers to p
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Answer:
r4 = 3.66 %
r5 = 4.51 %
r6 = 4.61 %
Explanation:
given data
interest rates = 2.25 %
interest rates = 2.60 %
interest rates = 2.98 %
interest rates = 3.25 %
time = 3 year
time = 4 year
time = 5 year
time = 6 year
to find out
expected one-year rates during years 4, 5, and 6
solution
we will apply here formula of unbiased expectations theory for expected interest rate that is
r = ..................................1
here r is expected one yea rate of interest
t is denoted year
and R is reported rate of interest
so put here value for 4 year
r4 =
r4 =
r4 = 0.0366
r4 = 3.66 %
and now put value for year 5 in equation 1
r5 =
r5 =
r5 = 0.0451
r5 = 4.51 %
and
now put value for year 6 in equation 1
r6=
r6 =
r6 = 0.0461
r6 = 4.61 %