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2. (12 points; 6 each) Assume the pure expectations theory of the term structure is correct. Right now (date 0) one-year pure-discount bonds yield 6%.

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2. (12 points; 6 each) Assume the pure expectations theory of the term structure is correct. Right now (date 0) one-year pure-discount bonds yield 6%. Comparable two-year bonds yield 500, and three-year bonds also yield 5%. a. What does the market expect one-year bonds to yield next year? b. What does the market expect two-year bonds to yield next year

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