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  3. suppose that the path of expected 1-yr interest ra

Suppose that the path of expected 1-yr interest rates over the next three years is...

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Accounting

image Suppose that the path of expected 1-yr interest rates over the next three years is 2%,4%,4.5%. If the current two-year interest rate is 4%, what is the implied term premium on the two-year bond? (Hint: You should use the approximation from class.) QUESTION 3 Suppose that the spot interest rate on a one-year zero-coupon bond is 2% and the spot interest rate on a two-year zero-coupon bond is 3.5%. Based on the pure expectations theory of the term structure of interest rates, what is the expected one-year interest rate starting in one year? (Hint: You should use the approximation from class.)

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