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Imagine that in a given economy we observe the following yields it-2%. 22t-4% and 13t-6% on bonds of maturities 1, 2, and 3. Initially, assume
Imagine that in a given economy we observe the following yields it-2%. 22t-4% and 13t-6% on bonds of maturities 1, 2, and 3. Initially, assume that expectations theory of term structure holds. i) Find the expected value of the short interest rate in period t +2 ii) In which period is the short term interest rate the highest? 1
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