5. Term structure of interest rate Suppose the current interest rates on multiyear bonds are 1 year 2 years 3 years 4 years Interest 8% 7% 6% 5% 5 years 5% 6 years 5% rate Assuming the expectations theory is the correct theory of the term structure. a) Calculate the expected one-year interest rates of years 2 to 6. (10%) b) Some analyst interprets the above term structure as a very bad signal on economic prospect. Do you agree? Explain. (10%)