In: Finance
One-year Treasury securities yield 2.05%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 2.5%. If the pure expectations theory is correct, what is the yield today for 2-year Treasury securities? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places.
%
Yield for 2-year Treasury securities = [(1 + One-year Treasury securities yield) * (1 + 1-year Treasury securities yield, one year from now)]^(1/2) - 1
Yield for 2-year Treasury securities = [(1 + 0.0205) * (1 + 0.025)]^(1/2) - 1
Yield for 2-year Treasury securities = 1.0460125^(1/2) - 1
Yield for 2-year Treasury securities = 1.0227475251 - 1
Yield for 2-year Treasury securities = 0.0227475251
Yield for 2-year Treasury securities = 2.27475251%
Yield for 2-year Treasury securities = 2.27%