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What are the expected one-year interest rates

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Suppose that the yield curve shows that the one-year bond yield is 8%, the two-year yield is 7%, and the three-year yield is 7%. Assume that the risk premium on the one-year bond is zero, the risk premium on the two-year bond is 1%, and the risk premium on the three-year bond is 2%.

What are the expected one-year interest rates next year and the following year?

The expected one-year interest rate next year = ?%

The expected one-year interest rate the following year = ?%

Reference no: EM132585324

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