Consider the following $1,000 par value zero-coupon bonds:

Bond Years until Maturity Yield to Maturity

A 1 9.50%

B 2 10.50%

C 3 11.00%

D 4 11.50%

a. According to the expectations hypothesis, what is the markets expectation of the one-year interest rate three years from now? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Interest Rate_______%

b. What are the expected values of next years yields on bonds with maturities of (a) 1 year; (b) 2 years; (c) 3 years? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Maturity (years) YTM

1 ________%

2 ________%

3 ________%