The correct answer is D.

According to the Expectations Theory, the forward rates are unbiased predictors for making expectations of future spot rates. We can therefore forecast future interest rates by looking at the term structure of interest rates since the return on a long-term bond is in essence the average return on short-term bonds over the same period.

$(1 + r_3)^3 = (1 + r_1)(1 + f_{1,1})(1 + f_{2,1})$ $(1 + r_3)^3 = (1 + 0.1)(1 + 0.11)(1 + 0.115)$ $`$1` + r_3 = 1.1083$$r_3 = 10.83%$$

Note: We can as well simply find the average of the short-term rates:

$\text{Three-year rate} = \frac{(10\% + 11\% + 11.5\%)}{3} = 10.83\%$