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Suppose that the interest rate on a one year bond is 7 percent today and the intrest rates are exected on one yea bonds in the future are 6 percent
Suppose that the interest rate on a one year bond is 7 percent today and the intrest rates are exected on one yea bonds in the future are 6 percent in one year, 5 percent in two years, and 4 percent in three years.a) According tothe expecations theory of the term structure, what arethe inteest rate today on a two year bond, a three year bond, and a for year bond?b) If the term premium is equal to half a percent times the number of years to maturity of a bond for times to maturity of two, three, and four years, what are the interest rates today on a two year bond, a three year bond, and a four year bond
