Using a simple arithmetic calculation, determine what the expected rate on two-year securities will be two...

Using a simple arithmetic calculation, determine what the expected rate on two-year securities will be two years from now if the current two-year note yields 3% and the current four-year note yields 4.5%.

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Expert Solution

The current two-year note yields 3%
The current four-year note yields 4.5%
Expected Rate on 2 year securities will be two years from now =(1+4 year note)^4/(1+2 year note)^2-1
=(1+4.5%)^4/(1+3%)^2-1 =12.41%

jeff jeffy answered 2 years ago

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