3. Bond Market Efficiency:

a. If the bond market is efficient, what are the properties of the price of a long-term bond and its expectation errors?

b. Assume the pure expectations theory is valid and consider two bonds: a short-term bond with an original term to maturity of one year and another long-term bond of n years. What is the equation that characterize the the yield to maturity of the long-term bond in equilibrium and explain concisely

why it is an equilibrium condition.

c. Based on your expression or equation in b above, find an expression or equation that characterizes

a one-period change in the long-term yield. Give also a brief interpretation to your finding.