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Suppose your friend is deciding between investing in two consecutive 1-year Treasury bonds and a 2-year Treasury bond. The yield on a 1year bond is
Suppose your friend is deciding between investing in two consecutive 1-year Treasury bonds and a 2-year Treasury bond. The yield on a 1year bond is 4.70% today and the yield on a 2-year bond is 6.00%. You tell your friend that if the expected interest rate on a 1-year bond 1 year from now is ________________ , then she should be indifferent between the two options.
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