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A one-year Treasury bill offers a 7% yield to maturity. The markets concensus forecast is that one-year T-bills will offer 5% next year. What is the current yield on a two-year T-bill if the expectations hypothesis holds? Enter your answer as a percentage. Do not include the percentage sign in your answer Enter your response below. Enter your answer rounded to 2 DECIMAL PLACES.

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Answer #1

Two-year rate:

= [(1+7%)×(1+5%)]^(1/2)-1

= 6.00%   

Hence, Two-year T-bill rate is 6.00%   

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