Assume that the real risk free rate is constant at 1.5 %. The yield is 2.3%...

Assume that the real risk free rate is constant at 1.5 %. The yield is 2.3% on 1-year treasury, 3.0% on 2-year treasury, 3.5% on 3-year treasury, and 5.0% on 5-year treasury securities. What is the expected rate on three year treasury securities, 2 years from now?

What is the expected rate on 3year treasury securities, 2 years from now? Show all the work with formula

Expert Solution

expected rate on three year treasury securities = [1+Y5]^5/[1+Y2]^2 -1

= [1+.05]^5 /[1+.03]^2 - 1

= 1.27628/1.0609 - 1

= 1.203-1

= .203 or 20.3%

jeff jeffy answered 2 years ago

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