Suppose there are only two periods and N=2 years. If the annual interest rate on a two-year bond is 3% and the expected interest rate on a one-year bond issued at the end of year 1 is 2%, what is the interest rate on a current one-year bond?

The N period version of the expectations hypothesis is given by: -N 1 - 1 -2 -N to _ E(10 + 1 + \"'+ lNl) Suppose there are only two periods and N=2 years. If the annual interest rate on a twoyear bond is 3% and the expected interest rate on a one-year bond issued at the end of year 1 is 2%, what is the interest rate on a current one-year bond? 2% 3% 4% 6% 8%