The yield to maturity on one-year zero coupon bonds is 4.98%. The yield to maturity on two-year zero coupon bonds is 6.94%.
a. What is the forward rate of interest for the second year? (Round your answer to 2 decimal places.)
Forward rate %
b. According to the expectations hypothesis, what is the expected value of the one-year interest rate for next year? (Round your answer to 2 decimal places.)
Expected value