c. Suppose the federal funds rate is 3.75 percent. Bond traders expect it to remain at that level for 3 months and then rise to 4.5 percent for 9 months. However, the Federal Open Market Committee (FOMC) raises the rate to 4.5 percent immediately. After this action, traders expect the funds rate to stay at 4.5 percent for a year. How does the FOMC's above action affect the 3-month interest rate, the 6-month rate, and the 1-year rate? Show all steps and explain. 10 marks

3 d. Suppose the federal fund rate is currently 0.5% and the term premium between the federal funds rate and the 1-year rate is equal to 1.0%. Also, suppose that it is expected that the FOMC will increase the federal funds rate 2 months from now by 25 basis points. Everything else held constant, what is the value of the 1-year interest rate today. Show detail calculation with explanation. 5 marks