The term structure for zero-coupon bonds is currently: Maturity (Years) YTM (%) 1year- 5.0% 2year - 6.0% 3year- 7.0%

Next year at this time, you expect it to be: Maturity (Years) YTM (%) 1year- 6.0% 2year - 7.0% 3year- 8.0%

a. What do you expect the rate of return to be over the coming year on a 3-year zero-coupon bond? (Round your answer to 1 decimal place.)

b-1. Under the expectations theory, what yields to maturity does the market expect to observe on 1- and 2-year zeros at the end of the year? (Round your answers to 2 decimal places.)

b-2. Is the market's expectation of the return on the 3-year bond greater or less than yours? Greater Less