Suppose 2-year Treasury bonds yield 6%, while 1-year bonds yield 5%. r* is 1.5%, and the maturity risk premium is zero.
a. Using the expectations theory, what is the yield on a 1-year bond, one year from now? Round your answer to two decimal places. %
b. What is the expected inflation rate in Year 1? Round your answer to two decimal places. %
c. What is the expected inflation rate in Year 2? Round your answer to two decimal places. %