Suppose 2-year Treasury bonds yield 5.3%, while 1-year bonds
yield 3.6%. r* is 1%, and the maturity risk premium is zero.
Negative expected inflation rates, if any, should be indicated by a
minus sign.
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 1? Do...