1. The interest rate on one-year Treasury bonds is 0.4 percent, the rate on tow-year T-bonds is 0.8 percent, and the rate on a three-year T-bonds is 1.1 percent. Using the expectations theory, compute the expected one-year interest rates in (a) the second year (Year 2 only) and (b) the third year (Year 3 only).
2. The interest rate on five-year Treasury bonds is 3.1 percent, the rate on six-year T-bonds is 2.9 percent. Using the expectations theory, compute the expected one-year interest rates in (a) Year 6 only and (b) Year 7 only.