# Future Interest Rates Based on the pure expectations

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6-6-2 Future Interest Rates Based on the pure expectations theory, if I lock in at 4% on a two-year security, how much return do I expect on a one-year security in the third year if the other option is to lock in a yield of 3.5% for the next three years? 6-6-3 Future Interest Rates -2nd Example Suppose that you can lock into a five-year security with a yield of 4%. If the threeyear rate is 3.5%, what is the expected two-year rate in three years (for years four and five) based on the pure expectations theory? 6-7 Macro Factors The Federal Reserve decides to greatly increase the money supply. What is the expected effect on interest rates? Lower interest rates

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Future Interest Rates Based on the pure expectations

Future Interest Rates Based on the pure expectations