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12. Suppose that 1-year bonds currently offer a nominal yield to maturity of 4% (11,0 = 0.04), otherwise comparable 2-year bonds currently offer a
12. Suppose that 1-year bonds currently offer a nominal yield to maturity of 4% (11,0 = 0.04), otherwise comparable 2-year bonds currently offer a yield to maturity of 4.5% (i2,0 = 0.045), and 3 year bonds currently offer a yield to maturity of 4.8% (13,0 = 0.048). a. Draw the current yield curve. b. Based on the Expectations Theory of Term Structure, what yield to maturity do investors expect next year's 1 year bonds to earn (i.e. - what is i,1)? c. What do investors expect the yield to be on 1 year bonds in two years (11,2 =?)? d. What do investors expect the yield to be on 2 year bonds next year (i21 =?)?
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