10. The interest rate on a one-year govern¬ ment bond is 4 percent, the rate on a two- year government bond is 7 percent, and the rate on a three-year government bond is 9 percent.

(a) . Describe the shape of the yield curve.

(b) . Use the expectations hypothesis to determine the market’s forecast of the one-year rate next year.

(c) . What is the market’s forecast of the one-year rate in two years?