The term structure for zero-coupon bonds is currently:

Next year at this time, you expect it to be:

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?

Maturity (Years) 1 HNM 2 3 YTM(%) 4.6% 5.6 6.6 Maturity (Years) 1 723 2 YTM (%) 5.6% 6.6 7.6 Rate of return % Maturity 1 2 YTM % %