Todays () interest rates on one- and two-year discount Treasury bonds are 1% and 1.4%, respectively. People expect that the one-year interest rate will be 1.2% one year from today ( + 1), and 2% two years from today ( + 2).

a. Calculate the term premium for the two-year T-bonds.

b. Suppose that the term premium for three-year T-bonds is 0.5%. Calculate todays interest rates on three-year T-bonds.