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5. Suppose two year treasury bonds yield 5%, while 1 year bonds yield 3%, risk free rate (r*) is 1% and the maturity risk premium
5. Suppose two year treasury bonds yield 5%, while 1 year bonds yield 3%, risk free rate (r*) is 1% and the maturity risk premium is zero. a. Using the expectations theory, what is the yield on a 1 year bond 1 year from now? b. What is the expected inflation rate in Year 1? Year 2?
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