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Suppose the interest rate on 1-year maturity bonds today is 3% and 1 -year maturity bond rate is expected to be 4% next year and

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Suppose the interest rate on 1-year maturity bonds today is 3% and 1 -year maturity bond rate is expected to be 4% next year and 4.25% two years from now. Using the expectations hypothesis, compute the term structure and draw the yield curve for bond maturities up to three years. Draw on your graph what will happen to the yield curve if a liquidity premium is included

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