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Currently the one-year zero coupon rate is 2.5%. The market is expecting the one-year interest rate to be constant at 2.75% next two years. The
Currently the one-year zero coupon rate is 2.5%. The market is expecting the one-year interest rate to be constant at 2.75% next two years. The market also expects the one-year interest rate to be 3.00% and 3.50% in year 4 and year 5, respectively. The term premiums are 0.45%, 0.55%, 0.65% and 0.80% in year 2 through year 5, respectively. What would be the current yield curve (from year 1 to year 5)?
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