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1. Suppose that the interest rate this year is 4% and financial markets expect the interest rate to increase by 0.5 percentage point each year

1. Suppose that the interest rate this year is 4% and financial markets expect the interest rate to increase by 0.5 percentage point each year for the following five years. Determine the yield to maturity on a: a) Three-year bond. b) five-year bond

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