question archive One year T-bills presently pay 3
One year T-bills presently pay 3
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One year T-bills presently pay 3.8% interest and two year T-notes pay 4.3%, What is the expected one year T- bill rate a year from now (1-year forward rate)?
Select one:
a. 6%
b. 3.3%
c. 4.8%
d. 5%
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Solution
One year T-bill rate = (1+Two year rate)^2/(1+One year bill rate) - 1
=(1+4.3%)^2/(1+3.8%)-1
= 4.8%
