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The current interest rate p.a. on government bonds are 13.90%, 11.70%, and 10.60% for 1,2, and 3 years to maturity respectively. Assume that the term
The current interest rate p.a. on government bonds are 13.90%, 11.70%, and 10.60% for 1,2, and 3 years to maturity respectively. Assume that the term structure can be explained purely by expectations of future interest rates, and therefore there is no liquidity or risk premium. Calculate the expected 1-year rates for the next 2 years.
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