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What is the equilibrium market forecast for 1-year rates 1

Estimating the 1-year forward rate

Suppose the interest rate on a 1-year T-bond is 1.0% and that on a 2-year T-bond is 3.0%. Assume that the pure expectations theory is NOT valid, and the MRP is zero for a 1-year T-bond but 0.2% for a 2-year bond. What is the equilibrium market forecast for 1-year rates 1 year from now?

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Finance Basics: What is the equilibrium market forecast for 1-year rates 1

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