# If the expectations theory of the term structure is correct, what is the 1-year interest rate expected during Year 3?

Assume that the current interest rate on a 1-year bond is 8 percent, the current rate on a 2-year bond is 10 percent, and the current rate on a 3-year bond is 12 percent. If the expectations theory of the term structure is correct, what is the 1-year interest rate expected during Year 3?

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Interest rate in the 3rd year is the difference between total interest on the three year bond less total ...

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$2.19