Question

The yield on a one-year Treasury security is 4.4600%, and the two-year Treasury security has a 5.3520% yield. Assuming that the pure expectations theory is correct, what is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.)

7.9395%

5.3139%

7.1268%

6.2516%

Recall that on a one-year Treasury security the yield is 4.4600% and 5.3520% on a two-year Treasury security. Suppose the one-year security does not have a maturity risk premium, but the two-year security does and it is 0.5%. What is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.)

6.6618%

5.2455%

5.9799%

4.4587%

Suppose the yield on a two-year Treasury security is 5.83%, and the yield on a five-year Treasury security is 6.20%. Assuming that the pure expectations theory is correct, what is the market’s estimate of the three-year Treasury rate two years from now? (Note: Do not round your intermediate calculations.)

7.10%

6.53%

5.46%

6.45%

Answer 1