Question: Suppose 1-year Treasury bonds yield 4.70% while 3-year T-bonds yield 4.30%. Assuming the pure expectations theory is correct, and thus the maturity risk premium for
Suppose 1-year Treasury bonds yield 4.70\% while 3-year T-bonds yield 4.30\%. Assuming the pure expectations theory is correct, and thus the maturity risk premium for T-bonds is zero, what is the yield on a 2-year T-bond expected to be one year from now? \begin{tabular}{|} \hline 4.10% \\ \hline 5.25% \\ \hline 3.98% \\ \hline 4.83% \\ \hline 4.26% \\ \hline \end{tabular}
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