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Question
According to the expectations theory of the term structure of interest rates, if the interest rate on a one-year bond today is 3.0 percent, the expected interest rate on a one-year bond one year from now is 4.0 percent, and the expected interest rate on a one-year bond two years from now is 4.5 percent, then the interest rate on a two-year bond today isa. 3.00 percent.
b. 3.50 percent.
c. 3.83 percent.
d. 4.00 percent.
Answer
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