Bonds
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At your favorite bond store, Bonds R Us, you see the following prices:
One year $100 zero selling for $90.19
Three year 10% coupon $1000 par bond sell for $1000
Two year 10% coupon $1000 par bond selling for $1000.
Assume that the expectations theory for the term structure of interest rates holds, no liquidity premium exists, and the bonds are equally risky. What is the implied one-year rate two years from now?
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