You note the following yield curve in The Wall Street Journal. According to the unbiased expectations theory, what is the one-year forward rate for the period beginning two years from today, 3f1?

Do not round intermediate calculations. Round your answer to 2 decimal places. (e. g., 32.16))

Maturity Yield

One day 1.10%

One year 1.62

Two years 1.86

Three years 1.97

One-year forward rate %

The one-year forward rate for the period beginning two years from today is : 2.19%.

Explanation:

One-year forward rate from the period beginning two years from today is denoted as 2f1;

Three-year forward rate from today is denoted as : 1f3;

Two-year forward rate from today is denoted: 1f2;

Under the unbiased expectations theory, we have:

(1 + 1f2) ^2 * (1+2f1) = (1+1f3) ^3 (1 + 1.86%) ^2 * (1 + 2f1) = (1 + 1.97%) ^3 1+2f1 = 1.0219 2f1 = 2.19%

So, the answer is 2.19%.