Part 2 Assuming that the expectations theory is the correct theory of the term structure, calculate the interest rates in the term structure for maturities of 1 to 5 years and plot the resulting yield curves for the following series of 1-year interest rates over the next 5 years: (a) 5%, 7%, 7%, 7%, 7% (b) 5%, 4%, 4%, 4%, 4% 1. How would your yield curves change if people preferred shorter-term bonds over longer-term bonds? (10 points) 2. Considering the shape of yield curves for 1 and 2 what is the market predicting about future shortterm interest rates? (10 points) Note: F igm'e of yield. curve is required. 3. What might the yield curve indicate about the ination rate in the future? (10 points)