1. Using the Expectations Theory, fill the three missing spaces in the above table with detailed steps and then briefly comment on your results.

2. Explain in detail the assumptions of Expectations Theory you use to get the missing information.

3. Plot the interest rate term structure as of today and comment on your plot.

11 Answer ONE question in Section A. QUESTION ONE Today, you observed the following information in the bond-related market. All the rates are annualised. it is the current interest rate for a T-year bond, if is the expected interest rate (of a 1- year bond) invested at time t. Interest Rate Future Expected Interest Rate 5.23% 1 1,0 (Missing 3) 12 (Missing 1) 4.62% 12 (Missing 2) 4.61% 1 1,1 11,2 a) Using the Expectations Theory, fill the three missing spaces in the above table with detailed steps and then briefly comment on your results. (20 marks) b) Explain in detail the assumptions of Expectations Theory you use to get the missing information (10 marks) c) Plot the interest rate term structure as of today and comment your plot. I (20 marks) [TOTAL: 50 MARKS] QUESTION TWO