Question

ten * Excel File Insert Data Review Home X Cut View 10 A Help - A A E LU Tell me what you want to do = = 29 Wrap Text E Merge & Center - Alignment Copy - Paste BTUR Format Painter Clipboard Undo FE 1 Expectations Theory 3 4 4-yr. Treasury security yield 6-yr. Treasury security yield 5.75% 730% Formulas 6 7 8 9 Algebraic solution: Total return eamed on 6-year securities Total return eamed on 4 year securities Yield on 2-yr. securities, 4 years from now HINA N/A ANA 11 Geometric solution: 12 1 + Total return earned on 6-year securities 13 1 + Total return earned on 4-year securities 14 Yield on 2-yr securities, 4 years from now #NA ΗΝΑ Sheet1 @ e

Answer 1

Rate on 2 year securities 4 years from now is given as equal to=((1+rate for 6 years securities now)^6/(1+rate for 4 year securities now)^4)^(1/2)-1=(1.073^6/1.0575^4)^(1/2)-1=10.46849%