12) Due to a recession, expected inflation this year is only 2.25%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 2.25%. Assume that the expectations theory holds and the real risk-free rate (r*) is 3.25%. If the yield on 3-year Treasury bonds equals the 1-year yield plus 3.25%, what inflation rate is expected after Year 1? Round your answer to two decimal places.

13) A company's 5-year bonds are yielding 9.1% per year. Treasury bonds with the same maturity are yielding 6.5% per year, and the real risk-free rate (r*) is 2.40%. The average inflation premium is 3.70%, and the maturity risk premium is estimated to be 0.1 x (t - 1)%, where t = number of years to maturity. If the liquidity premium is 1.1%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.

15) Suppose 2-year Treasury bonds yield 5.6%, while 1-year bonds yield 6.2%. r* is 2%, and the maturity risk premium is zero. Negative expected inflation rates, if any, should be indicated by a minus sign.

1. 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.
2. What is the expected inflation rate in Year 1? Do not round intermediate calculations. Round your answer to two decimal places.
3. What is the expected inflation rate in Year 2? Do not round intermediate calculations. Round your answer to two decimal places.