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One - year interest rates are 3 percent. The market expects one - year rates to be 5 percent one year from now. The market

One-year interest rates are 3 percent. The market expects one-year rates to be 5 percent one year from now. The market also expects one-year rates to be 7 percent two years from now. Assume that the unbiased expectations theory holds. Which of the following is correct?

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