Suppose that the interest rate on one-year bonds is currently 4 percent and is expected to be 5 percent in one year and 6 percent in two years. Using the expectations hypothesis, compute the yield curve for the next three years.

the yield curve will be the average between the different percentage of the bonds yield:

Year 1: that is simple the same as the fgiven rate 4%

Year 2: we do the average among the two years:

4% + 5% = 9% in two year average per year 4.5%

Year 3: we procedd the same as before:

4% + 5% + 6% =15% in three years

the average will be of 5%

Explanation:

i guess you could put raise the economic balance