2. Assume that the market consists of 2 zero-coupon bonds: i) A risk-free, one-year bond, with a face value of $100, and ii) A risk-free two-year bond, with a face value of $100. Both are trading at 9% yield to maturity. The market expects the yield curve to shift up to 11% next year, but, as yet, has not factored that expectation into its current investment decisions. Explain the reaction of the investors and issuers and determine the equilibrium one-year and two-year yields. (You will need to use the Pure Expectations Theory. Class notes will help you.)