Question: Suppose the current yield on 1 - year bonds is 5 % and the current yield on 2 - year bonds is 4 % .

Suppose the current yield on 1-year bonds is 5% and the current yield on 2-year bonds is 4%. By approximation, calculate the expected yield on a 1-year bond in a years time. What does this information tell us about the slope of the yield curve and the financial markets opinion about the direction of monetary policy?

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