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4. Expectation Theory Inflation: Suppose 2-year Treasury bonds yield 4.1%, while 1-year bonds yield 3.2%. r* is 1%, and the maturity risk premium is zero.

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4. Expectation Theory Inflation: Suppose 2-year Treasury bonds yield 4.1%, while 1-year bonds yield 3.2%. r* is 1%, 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 the geometric average. b. What is the expected inflation rate in Year 1? Year 2

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