Assume that the pure expectations theory is not valid and, Financial Management

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Assume that the pure expectations theory is not valid and

Suppose the interest rate on a 1-year T-bond is 5.0% and that on a 2-year T-bond is 6.0%. Assume that the pure expectations theory is NOT valid, and the MRP is zero for a 1-year T-bond but 0.4% for a 2-year bond.

What is the equilibrium market forecast for 1-year rates 1 year from now?

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Financial Management: Assume that the pure expectations theory is not valid and

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Financial Management: Assume that the pure expectations theory is not valid and

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