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Suppose that the interest rate on one year bonds is currently 3.5 percent and is expected to be 4 percent in one year and 6 p
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Answer #1

Yield for one-year bond = 3.5%

Yield for two-year bond = (3.5% + 4%)/2 = 3.75%

Yield for three-year bond = (3.5% + 4% + 6%)/3 = 4.50%

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