Question

. Consider 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.
The current four-year interest rate that would be consistent with these one-year interest rate
expectations is closest to

Answer 1

will start to slow and the one-year interest rate will fall to 5%. In two years, you expect the economy

Step-by-step explanation: