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Suppose the annual yield on a two-year Treasury bond is 3.2 percent, the yield on a...

Suppose the annual yield on a two-year Treasury bond is 3.2 percent, the yield on a one-year bond is 2.4 percent, the real risk-free rate of interest or r* is 2 percent, and the maturity risk premium is zero (0).

a. Using the expectation theory, forecast the interest rate on a one-year bond during the second year.

b. What is the expected inflation rate in Year 1?

c. What is the expected inflation rate in Year 2?

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SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASEv ( 05:37 ENG 27-02-202020 JL143 JG H I J K L M N JO JP 123 YIELD ON 2 YEAR TREASURY BOND YIELD ON 1 YEAR TREASURY BOND 3.20%

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