Assume that t year spot rate is given by the following formula:

rt = 0:3% + 0:03%t where t = 1; 2; : : : 30:

Suppose the expectation hypothesis holds. What term structure does the market expect in one year? How does it compare to the current term structure? (You can give an approximate answer using the fact that for small x and y, ((1 + x)^t)/ ((1 + y)^s) can be approximated by 1 + xt - ys