The yield curves in both (a) and (b) are pure yield curves. Assume the expectations hypothesis for both (a) and (b). And, please give your answers in x.xxx % format and circle them. a) The current yield curve is given by: y1 = 2% , y2 = 4% , y3 = 5%. Derive next years expected yield curve.

y1 = ___________ y2 = ___________

b) Assume the following: (1) next years yield curve is given by y1 = 5% , y2 = 6% , (2) the current market price of a 1-year zero-coupon bond with $1,000 par value is $968.99. By reverse engineering, derive the current yield curve .

y1 = _____________ y2 = ______________ y3 = ___________