You observe the following term structure:

 

Effective Annual YTM

1 year zero coupon bond

6.1%

2 year zero coupon bond

6.2

3 year zero coupon bond

6.3

4 year zero coupon bond

6.4

a. If you believe that the term structure next year will be the same as today’s, will the 1 year or the 4 year zeros provide a greater expected 1 year return?

b. What if you believe in the expectations hypothesis?