Compute the two-year nominal interest rate using the exact formula and the approximation formula for each set
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Compute the two-year nominal interest rate using the exact formula and the approximation formula for each set of assumptions listed in (a) through (c).
a. \(i_{t}=2 \% ; i_{t+1}^{e}=3 \%\)
b. \(i_{t}=2 \% ; i_{t+1}^{e}=10 \%\)
c. \(i_{t}=2 \% ; i_{t+1}^{e}=3 \%\). The term premium on a two-year bond is \(1 \%\).
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