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2. The current yield curve is inverted. Specifically, the current one-year interest rate is 1R1=5%, and the yields of two- and three-year bonds are 1R2=4.5%
2. The current yield curve is inverted. Specifically, the current one-year interest rate is 1R1=5%, and the yields of two- and three-year bonds are 1R2=4.5% and 1R3=4%, respectively. Suppose unbiased expectations hypothesis is true. (a) (3 points) Please solve for the market expectations of the one-year interest rates for next year and the year after (E(2r1) and E(3r1), respectively)
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