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4} Suppose the current 1-year (short term} interest rate is 20 percent and that markets expect the 1-year (short-term) interest rate will be 50 percent

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4} Suppose the current 1-year (short term} interest rate is 20 percent and that markets expect the 1-year (short-term) interest rate will be 50 percent one year from now. (15 points) a} Draw a yield curve covering terms to maturity ranging from 1 to 2 years according to the expectations theory of the term structure. Calculate (show your formulas and work) the current 2-year interest rate. Clearly indicate on a drawn yield curve what the current 1-year and current 2-year bond yields are. b) Now assume that the liquidity premium theory holds. Draw a plausible yield curve along with the yield curve in case (a). Assuming that the liquidity premium theory is correct, what would like];r happen if investors became less risk averse? Illustrate this

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