According to the Expectations Theory of the Term Structure of Interest

Multiple Choice

According to the expectations theory of the term structure of interest rates, if the interest rate on a one-year bond today is 3.0 percent, the expected interest rate on a one-year bond one year from now is 4.0 percent, and the expected interest rate on a one-year bond two years from now is 4.5 percent, then the interest rate on a two-year bond today is

A) 3.00 percent.
B) 3.50 percent.
C) 3.83 percent.
D) 4.00 percent.