Question $3$

$5$ pts

The year is $2040$ in the United States.

The interest rate on a one$-$year bond $i_{2040}=2\%.$ The annual interest rate on a two$-$year bond is $i_{2040}^m=2=2\%.$ The annual interest rate on a three$-$year bond is $i_{2040}^m=3=4\%.$ According to the expectations hypothesis, what is the market expecting the one$-$year rate will be in the year $2042?$ That is$,$ what is the value for $i_{2042}^e?$

$5\%$

$12\%$

$9\%$

$2\%$

$10\%$

$11\%$

$1\%$

$7\%$

$4\%$

$8\%$

$0\%$

$3\%$