Answer to Question #144791 in Accounting for Anushun Jayadharman

Question

Suppose the federal fund rate is currently 2% and the term
premium between the federal funds rate and the 1-year rate is equal to 1 percent.
Also, suppose that it is expected that the FOMC will increase the federal funds rate
3 months from now by 50 basic points. Everything else held constant, what is the
value of the 1-year interest rate today?
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Answer 1

$\frac{2.01\times3}{2}=3.015$

$2+2\times0.005=2.01$