You are a trader in a bond fund. The current yield curve is flat at 6%. Assume you decide to model the yield curve movement as a discrete annual process. Hence, at the end of one year, the yield curve moves up or down. Your in-house economist tells you that the yield curve will become either a flat 8% or a flat 3% with equal risk-neutral probabilities. Based on these numbers, just as you are about to make a trade, the young quant you hired to bring you sandwiches at lunch suddenly says that there is a huge problem with the economist’s view. Is he right?