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One-year government bonds yield 3 percent and 2-year government bonds yield 4 percent. Assume that the expectations theory holds. What does the market believe the

One-year government bonds yield 3 percent and 2-year government bonds yield 4 percent. Assume that the expectations theory holds. What does the market believe the rate on 1-year government bonds will be one year from today?

a. 5.00% * b. 5.50% c. 3.75% d. 4.00%

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