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Suppose the expectations theory of the term structure is correct. Suppose that the current interest rate on a one-year Treasury bill is 3 percent. Suppose the one-year T-bill rate is expected to rise to 4 percent one year from today, then to 5 percent the following year, and then stay at 5 percent thereafter. Compute the interest rate on current Treasury securities with maturities of one year, two years, three years, four years and five years, and plot the yield curve.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M938556

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