The following table shows the Interest rate on a 1-year bond today, i_1^0, and the expected interest rate on a 1-year bond in one year, i_1^1. Use the expectations theory to calculate the Interest rate on a 2-year bond today, i_2^0, and fill in the last cell in the table. Use the data from the table to draw the yield curve by placing the blue points (circle symbol) on the following graph. The curve will draw Itself between the two subsequent points. The risk is greater on long- term bonds than on short-term bonds. True False Solution Expectation theory TRUE. There are two primary reasons why long-term bonds are subject to greater interest rate risk than short-term bonds: (1.04)(1+X)=(1.01)^21+X= (1.01)^2)/1.040.980865385X= 1-0.98081.92%.