One-year interest rates are 6 percent. The market expects one-year rates to be 7 percent...
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One-year interest rates are 6 percent. The market expects one-year rates to be 7 percent one year from now. The market also expects one-year rates will be 8 percent two years from now. Assume that the pure expectations theory holds regarding the term structure. Which of the following statements is most correct?
| Todays three-year interest rate is 8 percent. | ||
| The yield curve is upward sloping. | ||
| Todays four -year interest rate is 9 percent. | ||
| Todays two-year interest rate is 7 percent. |
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