What shape is the yield curve

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Reference no: EM131606407

The one-year nominal interest rate is currently 5%. Assume that the one-year interest rate is expected to be 4% one year from now, and 3% two years from now. Using only the pure expectations theory, what are the EXACT (3 decimal places) annual interest rates on two-year and three-year securities? What shape is the yield curve? Identify one economic reason why the yield curve could have this shape?

Reference no: EM131606407

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