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5. In the Svensson (1994) model of the term structure of interest rates r,(t) = + (1 e) / t + B (((1 e)/2t)e)

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5. In the Svensson (1994) model of the term structure of interest rates r,(t) = + (1 e) / t + B (((1 e)/2t)e) + B 31 (((1 e) / 22) -e- ^^) -e Where It (T) is the interest rate at time t of maturity T Bot, B1, B2t and 3t are estimated parameters At and Azt are decay parameters. Explain what each of the four terms in the model are meant to measure. [8 marks]

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