Question: Suppose 2 -year Treasury bonds yleld 3.5%, while 1-year bonds yield 2.7%. r is 1%, and the maturity risk premlum is zero. a. Using the

Suppose 2 -year Treasury bonds yleld 3.5%, while 1-year bonds yield 2.7%. r is 1%, and the maturity risk premlum is zero. a. Using the expectations theory, what is the yleld on a 1 -year bond, 1 year from now? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places. b. What is the expected inflation rate in Year 1 Year 2? Do not round intermediate calculations. Round your answers to two decimal places. Expected inflation rate in Year 1: % Expected inflation rate in Year 2

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