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The following is the yield-to-maturity for one-year and two-year zero coupon bonds: Maturity (years) YTM (%) 1 10 2 11 If investors expect that the

The following is the yield-to-maturity for one-year and two-year zero coupon bonds:

Maturity (years) YTM (%)

1 10

2 11

If investors expect that the one-year interest rate will rise to 13% after two years, what should todays three-year interest rate be? ______%

Assume the expectations hypothesis holds true for the yield curve.

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