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Suppose 2-year Treasury bonds yield 5.1%, while 1 -year bonds yield 3.2%, r is 1.75%, and the maturity risk premiurn is zero. Negative expected inflation
Suppose 2-year Treasury bonds yield 5.1%, while 1 -year bonds yield 3.2%, r is 1.75%, and the maturity risk premiurn is zero. Negative expected inflation rates, if any, should be indicated by a minus sign. a. Using the expectations theory, what is the yield on a 1-year bond, 1 year from now? Calculate the yield using a geometric average, Do not round intermediate calculations. Round your answer to two decimal places. b. What is the expected infiation rate in Year 1 ? Do not round intermediate calculations. Round your answer to two decimal places. 23% What is the expected inflation rate in Year 2? Do not round intermediate calculations, Round your answer to two decimal places
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