On May 31st 2021, the yield on a one-year US Treasury bill was 0.05%. According to the New York Feds Survey of Consumer Expectations, the one-year rate of inflation for the year starting May 31st 2021 is estimated to be 4%. Suppose you also believe that the one-year interest rate on May 31st 2022 will be 2%. Furthermore, you believe this rate will continue to rise to 2.5% on May 31st 2023, and 3% on May 31st 2024.

a. Based on this information, what is the expected real rate of return on a one-year US Treasury bill?

b. If you are certain about these estimates of future interest rates, what current term structure of interest rates (that is yields on US Treasury bills maturing in two, three, and four years) is consistent with these expectations?

c. Plot the yield curve.

d. Suggest at least one theory to justify why you believe the one-year interest rate will start to rise a year from now.