Business, 19.02.2021 01:00 krojas015

Suppose the current one-year interest rate is 6%. One year from now, you believe the economy will start to slow and the one-year interest rate will fall to 5%. In two years, you expect the economy to be in the midst of a recession, causing the Federal Reserve to cut interest rates drastically and the one-year interest rate to fall to 2%. The one-year interest rate will then rise to 3% the following year, and continue to rise by 1% per year until it returns to 6%, where it will remain from then on. a. If you were certain regarding these future interest rate changes, what two-year interest rate would be consistent with these expectations

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Suppose the current one-year interest rate is 6%. One year from now, you believe the economy will st...