Question: Let's say we have a tyear spot rate is given by the following formula: rt = 0.3% + 0.03% t ...... where t = 1,

Let's say we have a tyear spot rate is given by the following formula: rt = 0.3% + 0.03% t ...... where t = 1, 2, . . . 30.

Assuming the expectation hypothesis holds. What term structure does the market expect in one year? How does it compare to the current term structure? Let's say for small x and y, (1 + x)t/(1 + y)s 1 + xt ys.

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