Using the yield Curve to Estimate Future Interest Rates Sclect You can calculate the yield curve, given infation and maturity-related risks. Looking at the yield curve, you can use the information embedded in it to estimate the market's expectations regarding future inflation, risk, and short-term interest rates. The theory states that the shape of the yield curve depends on investors' expectations about future interest rates. The theory assumes that bond traders establish bond prices and Interest rates strictly on the basis of expectations for future interest rates and that they are indifferent to maturity because they don't view lang-term bonds as being riskier than short-term boncs. For example, assume that you had a 1-year T-bond that yields 1.2% and a 2 year T bond that yields 2.459 . From ths information you could determine what the yield on a 1 year T-bond one year from now would be. Investors with a 2-year horizon could invest in the 2-year T-bond or they could invest in a 1-year T-bond today and a 1 year T-bond one year from today, Both options should yield the same resuit if the market is in equilibrium otherwise, nvestors would buy and sell securities uncil the market was in equilibrum. Today, interest rates on 1-year T-bonds yield 1.2%, interest rates on 2-year T-bonds yield 2.45%, and interest rates on 3-year T-Donas yield 3.6%, a. If the pure expectations theory Is correct, what is the yleld on 1-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Round your answer to four decimal places. Do not round intermediate calculations b. If the pure expectations theory is correct, what is the yieid on 2-year T-bonds one year from now? Be sure to use a geometric average in your caloulations. Round your answer to four decimal places. Do not ound intermediate calcu ations. c. If the pure expectations theory is corect, what is the yield on 1 year T-bonds two years from now? Be sure to use a gcometric average in your calculations, Round your answer to four cecimal places. Do not round intermediate calculations