Suppose the interest rate on a one-year CD is 5 percent, on a two-year CD is 4

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Suppose the interest rate on a one-year CD is 5 percent, on a two-year CD is 4 percent, and on a three-year CD is 8 percent,

(a) Describe the shape of the yield curve,

(b) Use the expectations hypothesis to determine the market’s forecast of the one-year rate next year,

(c) What is the market’s forecast of the one-year rate in two years?

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