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If the interest rate on a one-year bond selling today is 2%, the expected interest rate on a one-year bond one year from today is

If the interest rate on a one-year bond selling today is 2%, the expected interest rate on a one-year bond one year from today is 5%, and the liquidity premium is zero, what does expectations theory imply that the interest rate on a two-year bond selling today would be?

  1. What does this do to the price of one-year bonds?
  2. What does this do to the yield on one -year bonds?

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