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In: Economics

Suppose the interest rate on a one-year bond today is 6% per year, the interest rate...

Suppose the interest rate on a one-year bond today is 6% per year, the interest rate on a one-year bond one year from now is expected to be 4% per year, and the interest rate on a one-year bond two years from now is expected to be 3% per year. Assuming risk neutral investors, what is the interest rate today on a two-year bond?

On a three-year bond?

What is the shape of the yield curve?

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