The term structure for zero$-$coupon bonds is currently:

Next year at this time, you expect it to be:

Required:

a$.$ What do you expect the rate of return to be over the coming year on a $3-$year

zero$-$coupon bond?

b$.$ Under the expectations theory, what yields to maturity does the market expect

to observe on $1-$ and $2-$year zeros at the end of the year?

c$.$ Is the market's expectation of the return on the $3-$year bond greater or less

than yours?

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