The one-year spot interest rate is r1 = 3.00%, the two-year spot rate is r2 = 7.00%, and the three-year spot rate is r3 = 9.00%. Please State your answer as a percent and round to two decimal places. %

a. If the Expectations Theory is correct, what is the expected one-year spot interest rate in one years time?

b. If the Expectations Theory is correct, what is the expected one-year spot interest rate in two years time?

c. Your company needs to borrow money to finance a two-year investment. In a board meeting, Bill Wildcat argues that since short-term rates are lower than long-term rates, the company should borrow for one year and then refinance (borrow again) next year. The company President asks your opinion. What do you say?

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