One-year interest rates are 6 percent. The market expects one-year rates to be 7 percent one year from now. The market also expects one-year rates will be 8 percent two years from now. Assume that the pure expectations theory holds regarding the term structure. Which of the following statements is most correct?
Today’s three-year interest rate is 8 percent.
The yield curve is upward sloping.
Today’s four -year interest rate is 9 percent.
Today’s two-year interest rate is 7 percent.