Alex wishes to borrow money for 3 years. She can take out a

3-year loan or three consecutive 1-year loans. 

The

current annual interest rate on a 3-year loan is 5%. If she took out three

1-year loans the current interest rate on a 1-year loan starting today is 4%,

the expected interest rate on the second 1-year loan starting next year is 4.5%.

If the expectation hypothesis was to hold what would be the expected interested

rate on the third 1-year loan?

Assume

that principle and interest are repaid at the end of the loans.