Homework Answers
Q22. 2.2 percent
Expected path of interest rate is 1,2,1 percent.
Premia are 0,0.2 and 0.5 percent.
According to the given expected path, the interest rate on 2 year bond is 2 percent and premium on 2 year bond is 0.2.
So, the current interest rate on 2 year bond is 2+0.2 = 2.2 percent.
So, the answer is 2.2 percent.
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