Using the Yield Curve b Estimate Future Interest Rates You can calculate the yield curve, given inflation and maturity-related risks. Looking at the yield curve, you can use the information embedded in it to estimate the market's expectations regarding future inflation, risk, and short-term interest rates. The -salect investors expectations about fubure interest rates. The theory assumes that bond traders establish bond prices and interest rates strictly on the basis of expectations for future interest rates and that they are theory states that the shape of the yield curve depends being riskier than short-term bonds. For example, assume that you had a 1-year T-bond that ylelds 1.4% and a 2-year T-bond that yields 2 % . From this information you could determine what the yield on a indifferent to maturity because they don't view long-term bonds 1 year T-bond one year fram nok i be. Investonrs with a 2-year honzon cou imvest in the 2-year T-band or thay could invest in a 1-year T-bond today and a1-year T-bond one year from today. Bath cptions should vield the same result if the market is in aquilibrium securities um uilibrium Id buy and market was Quantitative Problem: Today, interest rates on 1-vear T-bonds vield 1.4%, interest rates on 2-year T-bands vield 2% , and interest rates on 3-vear T-bonds vield 3,4% . If the pure expectations theory correct, what is the yleld on 1-year T-bonds one year from now? Be sure to use a geometric average vour calculations. Round your answer to four decimal places. Do not round intermediate caloulations. correct, what is the yield on 2-year T-bonds one year from now? Be sure to use a geometric average b. If the pure expectations theory your calculations. Round your answer to four decimal places. Do not round intermediate calculations . If the pure expectations theory is correct, what is the yield on 1-year T-bonds two years from now? Be sure to use a geometric average in your calculations. Round your answer to four decimal places. Do not round intermediato calculations