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Question
The one-year spot rate is currently 4%; the one-year spot rate one year from now will be 3%; and the one-year spot rate two years from now will be 6%. Under the unbiased expectations theory, what must today's three-year spot rate be? Suppose the three-year spot rate is actually 3.75%, how could you take advantage of this? Explain.
Answer
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Related questions
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A. I only
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Due to convexity problems, banks are actually better off using the simpler repricing model to manage interest rate risk rather than the duration model.
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If a bank has a negative repricing gap, falling interest rates increase profitability.
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B. Class B
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D. Class Z
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