1) The yield on a one-year Treasury security is 4.9200%, and the two-year Treasury security has...

1) The yield on a one-year Treasury security is 4.9200%, and the two-year Treasury security has a 6.6420% 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?

2) Recall that on a one-year Treasury security the yield is 4.9200% and 6.6420% 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 0.35%. What is the market’s estimate of the one-year Treasury rate one year from now?

3) Suppose the yield on a two-year Treasury security is 4.0%, and the yield on a five-year Treasury security is 5.7%. Assuming that the pure expectations theory is correct, what is the market’s estimate of the three-year Treasury rate two years from now?

Expert Solution

WHEN I DID THE SUM, THE ANSWER WAS ROUNDED TILL 2 DECIMALS, BUT HERE NOTHING IS MENTIONED. SECONDLY, OPTIONS WERE ALSO GIVEN, SO WAS EASY TO CHOOSE FROM, BECAUSE ALL ANSWERS ARE ROUNDED.

ALL ANSWERS ARE 100% CORRECT. SO DONT WORRY, ONLY ROUNDING MAY BE AN ISSUE

jeff jeffy answered 11 hours ago

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