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One-year Treasury bills yield 6 percent, while Treasury notes with 2-year maturities yield 6.7 percent. If the expectations theory holds (that is, the maturity risk premium is zero), what is the market`s forecast of what 1 year T-bills will be yielding one year from now?

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Solution Summary

This solution calculates the market's forecast on the yield of a 1-year Treasury bill using the forward rate equation. All steps and formulas are shown.

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This is a question of forward rate:
Assume that the ...

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