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One-year Treasury securities yield 5%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 6%. If the pure expectations theory is correct, what is the yield today for 2-year Treasury securities? Calculate the yield using a geometric average.
One-year Treasury securities yield 5%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 6%. If the pure expectations theory is correct, what is the yield today for 2-year Treasury securities? Calculate the yield using a geometric average.
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Vaishali YadavLv10
21 Jan 2021
Related questions
4)You observe the following yield curve for Treasury securities:
Maturity | Yield |
1 year | 5.5% |
2 years | 5.8% |
3 years | 6.0% |
4 years | 6.3% |
5 years | 6.5% |
Assume that the pure expectations hypothesis holds. What is the predicted interest cost if you plan to borrow for 3 years, starting 2 year from today? ( Please show Calculation and work which led to the solution)
a) 6.75%
b) 6.30%
c) 6.40%
d) 6.97%
e) 7.30%