Question

1) The yield on a one-year Treasury security is 5.8400%, and the two-year Treasury security has a 7.0080% 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? (Note: Do not round your intermediate calculations.)

A. 10.3999%

B. 8.1889%

C.6.9606%

D. 9.3353%

2) Recall that on a one-year Treasury security the yield is 5.8400% and 7.0080% 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 0.2%. What is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.)

A. 7.7849%

B. 8.8748%

C. 6.6172%

D. 9.8868%

3) Suppose the yield on a two-year Treasury security is 5.83%, and the yield on a five-year Treasury security is 6.20%. Assuming that the pure expectations theory is correct, what is the market’s estimate of the three-year Treasury rate two years from now? (Note: Do not round your intermediate calculations.)

A. 6.69%

B. 6.53%

C. 6.45%

D. 7.10%

Answer 1