One-year Treasury securities yield 2.75%. The market anticipates that 1 year from now, 1-year Treasury securities...

One-year Treasury securities yield 2.75%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 3.6%. If the pure expectations theory is correct, what is the yield today for 2-year Treasury securities? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places.

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Expert Solution

Using Pure Expectations Theory,

(1 + r(1,2))² = (1 + 0.0275)(1 + 0.036)

r(1,2) = 3.17%

jeff jeffy answered 1 year ago

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