Question: Suppose 2-year Treasury bonds yield 3.8%, while 1-year bonds yield 2.6%. r* is 1%, and the maturity risk premium is zero. a. Using the

Suppose 2-year Treasury bonds yield 3.8%, while 1-year bonds yield 2.6%. r*

Suppose 2-year Treasury bonds yield 3.8%, 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. b. What is the expected inflation rate in Year 17 Year 27 Do not round intermediate calculations. Round your answers to two decimal places. Expected inflation rate in Year 1:1 % Expected inflation rate in Year 2: 96

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