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Explain each of the following in one to three sentences. 1. Assume that there is a sudden expectation of lower interest rates in the future.

Explain each of the following in one to three sentences.

1. Assume that there is a sudden expectation of lower interest rates in the future. What would be the effect on the yield curve and why?

2. Name and explain the two components of the risk-free rate of return.

3. Explain what is meant by the Expectations Theory of Interest rate Determination.

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