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5-4 Suppose the annual yield on a two-year Treasury bond is 7.5 percent, the yield on a one-year bond is 5 percent, r* is 3

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5-4 Suppose the annual yield on a two-year Treasury bond is 7.5 percent, the yield on a one-year bond is 5 percent, r* is 3 percent, and the maturity risk premium is zero (0). Using the expectations theory, forecast the interest rate on a one-year bond during the second year. b. What is the expected inflation rate in Year 12 Year 2? a

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