Question: 2. The current yield curve is inverted. Specifically, the current one-year interest rate is 1R1=5%, and the yields of two- and three-year bonds are 1R2=4.5%

2. The current yield curve is inverted. Specifically, the current one-year interest rate is 1R1=5%, and the yields of two- and three-year bonds

2. The current yield curve is inverted. Specifically, the current one-year interest rate is 1R1=5%, and the yields of two- and three-year bonds are 1R2=4.5% and 1R3=4%, respectively. Suppose unbiased expectations hypothesis is true. (b) ( 3 points) Suppose market expectation of the one-year interest rate two years later (E(3r1)) suddenly increased. Nothing else changed. What will happen to the yields of two-year bonds 1R2

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