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Assume the local return to maturity ET holds true and interest-rate risk is not priced. Also, assume short-term rates follow a random walk with no

Assume the local return to maturity ET holds true and interest-rate risk is not priced. Also, assume short-term rates follow a random walk with no drift: E (y1) = y1. What is the shape of the spot curve? What happens if the volatility of interest rates increases?

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