Under the expectations theory

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You see the following current (spot) interest rates for Treasury bonds with an upward sloping yield curve:

5-year bond rate =1.94%; 10-year bond rate = 2.45%

a. Under the expectations theory, what is the expected 5-year bond rate (forward rate) 5 years from now? Based on your answer, what are rates expected to do (rise/fall/stay the same)? Explain why

Reference no: EM131452357

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