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1. Suppose the real interest rate is currently 1.5% and is expected to stay at 1.5% for the foreseeable future. The financial market is expecting
1. Suppose the real interest rate is currently 1.5% and is expected to stay at 1.5% for the foreseeable future. The financial market is expecting no inflation this year, but 0.5% next year and 1% in the year that follows. Construct the zero coupon yield curve for year 1, year 2 and year 3 under the unbiased expectation hypothesis and the fisher hypothesis.
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