The yield to maturity on one-year zero-coupon bonds is 7.1%. The yield to maturity on two-year zero-coupon bonds is 8.1%.
a. What is the forward rate of interest for the second year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Forward rate of interest %
b. If you believe in the expectations hypothesis, what is your best guess as to the expected value of the short-term interest rate next year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Short-term interest rate %