Question 6 Using expectations theory: You observe that there is a one-year Treasury bond with a yield of 3.0%. You also assume that rates will increase and that the one-year bond will increase by 1.0% each year. For example, you expect the one-year bond in year 2 will be 4.0% and 5.0% in year 3. With that information, what do you expect the 3-year interest rate to be in % terms? Question 7 2 pts Using the information from the prior problem, what rate (in %s) do you expect a 5-year bond to have? 1 pts From Prior: You observe that there is a one-year Treasury bond with a yield of 3.0%. You also assume that rates will increase and that the one-year bond will increase by 1.0% each year. For example, you expect the one-year bond in year 2 will be 4.0% and 5.0% in year 3.

Using expectations theory: You observe that there is a one-year Treasury bond with a yield of 3.0%. You also assume that rates will increase and that the one-year bond will increase by 1.0% each year. For example, you expect the one-year bond in year 2 will be 4.0% and 5.0% in year 3. With that information, what do you expect the 3 -year interest rate to be in \% terms? Question 7 2 pts Using the information from the prior problem, what rate (in \%s) do you expect a 5-year bond to have? From Prior: You observe that there is a one-year Treasury bond with a yield of 3.0%. You also assume that rates will increase and that the one-year bond will increase by 1.0% each year. For example, you expect the one-year bond in year 2 will be 4.0% and 5.0% in year 3