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2. (2 points) Assume that the unbiased expectations hypothesis is true. Suppose the current one-year interest rate is 2%, and suppose the yield of a

2. (2 points) Assume that the unbiased expectations hypothesis is true. Suppose the

current one-year interest rate is 2%, and suppose the yield of a two-year bond is

currently 3%. What is the market expectation of the one-year interest rate for next

year?

(a) Around 1%

(b) Around 2%

(d) Around 4%

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