Explain pure expectations theory intuitively and with an example. In your example assume a flat yield curve
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Explain pure expectations theory intuitively and with an example. In your example assume a flat yield curve with one- and two-year bonds at 6% and an expectation of next year’s yield curve being flat with one- and two-year bonds at 8%. Explain the theory only in terms of the response to the expectation by investors with one-year and two-year horizon dates.
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