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Please type answers (a) Distinguish between the money and capital markets (5 marks); and (b) identify and explain the securities traded in these markets (10
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(a) Distinguish between the money and capital markets (5 marks); and (b) identify and explain the securities traded in these markets (10 marks) (c) Suppose the annual yield on a 2-year Treasury bond is 5.5 percent, while that on a 1-year bond is 4 percent. K is 2 percent, and maturity risk premium is zero. (i) Using the expectation theory, forecast the interest rate on a 1-year bond during the second year.(3 marks) (ii) What is the expected inflation rate in Year 1?Year 2? (2 marks) (Total 20 marks)Step by Step Solution
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