Solution

1.

Expected two year rate in three years is given by the formula as
=((1+r5)^5/(1+r3)^3)^(1/2)-1
=((1+0.37%)^5/(1+0.28%)^3)^(1/2)-1
=0.51%

2.
Inverted yield curve is when long term maturity bonds have lower yield than short term maturity bonds, i.e., long-term yields fall below short-term yields

Most investors believe short-term rates are going to decline sharply at some point in future. One reason that the yield may be inverted because investors expect recession