Question: Suppose 2-year Treasury bonds yield 5%, while 1-year bonds yield 4%. r* is 1.75%, and the maturity risk premium is zero. a. Using the expectations

Suppose 2-year Treasury bonds yield 5%, while 1-year bonds yield 4%. r* is 1.75%, and the maturity risk premium is zero. a. Using the expectations theory, what is the yield on a 1-year bond, one year from now? Round your answer to two decimal places. % b. What is the expected inflation rate in Year 1? Round your answer to two decimal places. % c. What is the expected inflation rate in Year 2? Round your answer to two decimal places. %

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