Over the next three years, the expected path of 1-year interst rates is 4,1, and 1 percent. Today you buy $1 of one-year bond and when it matures you plan to use the money you receive to reinvest in one-year bond again. Then your expected rate of return for this $1 investment is _____% (round to the nearest integer). If the expectations theory of the term structure is true, then your expected rate of return for buying a two-year bond today is ____%, which implies that the current interest rate on 2-year bond must be ____%

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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Over the next three years, the expected path of 1-year interst rates is 4,1, and 1 percent. Today you buy $1 of one-year bond and when it matures you plan to use the money you receive to reinvest in one-year bond again. Then your expected rate of return for this $1 investment is _____% (round to the nearest integer). If the expectations theory of the term structure is true, then your expected rate of return for buying a two-year bond today is ____%, which implies that the current interest rate on 2-year bond must be ____%

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