Question: Suppose 2-year Treasury bonds yield 3.5%, while 1-year bonds yield 2.6%. r is 1%, and the maturity risk premium is zero. a. Using the expectations

Suppose 2-year Treasury bonds yield 3.5%, while 1-year bonds yield 2.6%. r is 1%, and the maturity risk premium is zero. a. Using the expectations theory, what is the yield 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. o b. What is the expected infiation rate in Year 17 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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