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The following question has two parts and pertains to the yield curve.
a. Suppose on February 6, 2007, the following information is available from the Treasury spot curve:
One-year spot rate = 5%
Two-year spot rate = 4.915%
What is the implied forward rate on a one-year zero coupon Treasury one year from now quoted on a bond-equivalent basis and how should this rate be interpreted?
b. What are three ways the yield curve changes or moves? How are these three changes correlated? Explain
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