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15.Suppose 2-year Treasury bonds yield 3.7%, while 1-year bonds yield 2.6%. r* is 2%, and the maturity risk premium is zero. a. Using the expectations

15.Suppose 2-year Treasury bonds yield 3.7%, while 1-year bonds yield 2.6%. r* is 2%, and the maturity risk premium is zero.

a. Using the expectations theory, what is the yield on a 1-year bond, 1 year from now? Calculate the yield using geometric average. Do not round intermediate calculations.

b. What is the expected inflation rate in Year 1? Year 2? Do not round intermediate calculations

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