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Imagine that the term premium is 0 . You observe that the interest rate on a 1 - year Treasury bond is 3 % and

Imagine that the term premium is

0 .

You observe that the interest rate on a

1 -

year Treasury bond is

3 %

and the interest rate on a

2 -

year Treasury bond is

5 % .

What are the expectations for interest rates next year?

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