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Term structure of interest rates

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Suppose that the spot interest rate on a one-year zero-coupon bond is 3% and the spot interest rate on a two-year zero-coupon bond is 4%. Based on the expectations theory of the term structure of interest rates, what is the expected one-year interest rate starting in one year. Use the approximation from class. Enter the answer in percentage points; for example, if the answer is 5.25%, enter 5.25 rather than .0525.

Reference no: EM133117345

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