1. Suppose the yield curve shows that a one year bond yield is 3 percent, the two year bond yield is 4 percent, the three year bond yield is 5 percent. Assume that the term premium on the one-year bond is zero, the term premium on the two year-bond is 1 percent, and the term premium on the three-year bond is 2 percent. a. What are the expected short-term interest rates for each of the next 3 years? b. If the term premiums were all zero, as in the expectations hypothesis, what would the slope of the yield curve be?

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1. Suppose the yield curve shows that a one year bond yield is 3 percent, the two year bond yleld is 4 porcent, the three year bond yiold is 5 percent. Astume that the term premiun on the one-year bond is zero, the term premium on the two year-bond fe1 percent, and the term premium on the three-year bond is 2 percent. a. What ace the expected short-term interest rates for each of the next 3 years? b. If the term premiums were all zero, as in the expectations hypothesis, what would the slope of the yleld curve be