expectations theory

1. A year ago, Melissa purchased 50 shares of common stock for $20 per share. During the year, the value of her stock decreased to $18 per share. If the stock did not pay a divided during the year, what yield did Melissa earn on her investment?
2. Suppose the annual yield on a two-year Treasury bond is 7.5 percent, the yield on a one-year bond is 5 percent, r* is 3 percent, and the maturity risk premium is zero.
a. Using the expectations theory, forecast the interest rate on a one-year bond during the second year. (Hint: Under the expectations theory, the yield on a two-year bond is equal to the average yield on one-year bonds in Year 1 and Year 2.)
b. What is the expected inflation rate in Year 1? Year 2?