What is the expected interest rate for a security

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Reference no: EM131022483

Assume the following data:

Current interest rate for a one year security is 2.5%

Actual inflation last year (2006) was 5%

Nominal GDP growth is 2% for both years

Current interest rate for a two year security is 4%

Current interest rate for a three year security is 5%

What is the expected (i.e. forward) interest rate for a security with a one year maturity one year from now?

State the formula and show your work.

Reference no: EM131022483

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