Question 31. Suppose the current interest rate on a one-year bond is 5 percent and the expected short-term interest rates for years 2, 3, and 4 are 7 percent, 7 percent, and 6 percent, respectively. (8 marks) a. Assume that the Expectations theory is the correct theory of the term structure of interest rates. Based on these expectations, determine the yield on bonds with maturities of one year up to four years? (3 marks) b. Describe the resulting yield curve? (1 mark)