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Suppose you are given the yield curve as follows: i 1 = 2%; i 2 = 3%; i 3 = 4%; i 4 = 5%.
Suppose you are given the yield curve as follows:
i1 = 2%; i2 = 3%; i3 = 4%; i4 = 5%. i5 = 7%, i10 = 10%. These represent the 1-year, 2-year, 3-year and 4-year, 5-year, 10-year bond yields today. Under the pure expectations theory, find a) the expected future one-year rates that will prevail from year 1 to year 2 b) from year 2 to year 3; & c) from year 3 to year 4.
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