on 34 t interest rate on a one-year bond is 4 percent and the current rate on a percent. If the expectations theory of the term structure is correct, wh ar interest rate expected during Year 2? That is, compute the rate that aly during Year 2. (Bas your answer on an arithmetic average rather 4.8% 4.2% correct. The yield on any bond is the average of the annual, o ear, interest rates that are expected during its life. See 5-3: The ructure of Interest Rates yield on the two-year bond - (R1 + R2)/2 = 1.6%, which means that R1+ R2 - 1.6%(2) = 3.2% See 5-3: The Term Structure of Interest Rates 1.6% O 3.4% O 1.9% 3.0% 011 pts orrect Question 34 The current interest rate on a one-year bond is 4 percent and the current rate on a two-year bond is 4.4 percent. If the expectations theory of the term structure is correct, what is the one-year interest rate expected during Year 2? That is, compute the rate that is expected to exist only during Year 2. (Base your answer on an arithmetic average rather than a geometric average.) 4.8% 4,2% Incorrect. The yield on any bond is the average of the annual, or one- year, interest rates that are expected during its life. See 5-3: The Term Structure of Interest Rates 4,4% 0,4% O8.4%