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The one-year spot interest rate is r1 = 6.6% and the two-year rate is r2 =...

The one-year spot interest rate is r1 = 6.6% and the two-year rate is r2 = 7.6%. If the expectations theory is correct, what is the expected one-year interest rate in one year’s time?
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Answer #1

One-year interest rate in One-year time = (1+r2)^2 / (1+r1) -1

One-year interest rate in One-year time = (1+7.6%)^2 / (1+6.6%) -1

One-year interest rate in One-year time = 8.6094% or ~ 8.61%

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