Assignment:
Expectations theory: What should be the interest rate on 3-year, risk-free securities?
The real risk-free rate of interest is 3 percent. Inflation is expected to be 2 percent this year, and 4 percent during the next two years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury Securities? What is the yield on 3-year Treasury securities?
Provide complete and step by step solution for the question and show calculations and use formulas.