If short-term interest rates over the next three years are assumed to be i? = 4%, i? = 5.5%, and i? = 4%, what do you expect the three-year rate to be under the expectations theory?
A) 5) 5%
B) 5) 0%
C) 4) 0%
D) 4) 5% plus a term premium
E) 5) 5% minus a term premium
Correct Answer:
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