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6. Answer the following two questions related to the term structure of interest rates. Answer both questions a and b. a. Explain what the following
6. Answer the following two questions related to the term structure of interest rates. Answer both questions a and b. a. Explain what the following terms mean: spot rate, short rate, and forward rate. Which of these is (are) observable today? (word limits: 200 words maximum). (7 Marks) b. Although the expectations of increases in future interest rates can result in an upward sloping yield curve; an upward sloping yield curve does not in and of itself imply the expectations of higher future interest rates. Explain. (word limits: 300 words maximum). (8 Marks)
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