Suppose that the yield on a two-year Treasury security is 5.84%, and the yield on a...

 

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Suppose that the yield on a two-year Treasury security is 5.84%, and the yield on a five-year Treasury security is 6.34%. Assuming that the pure expectation theory is correct, what is the market's estimate of the three- year Treasury rate two years from now? The error margin will allow either arithmetic or geometric averaging on this question. Your answer should be between 5.58 and 7.98, with no special characters. You may round to 4 decimal places if you wish, but only 2 decimal places are necessary for a correct answer. Suppose that the yield on a two-year Treasury security is 5.84%, and the yield on a five-year Treasury security is 6.34%. Assuming that the pure expectation theory is correct, what is the market's estimate of the three- year Treasury rate two years from now? The error margin will allow either arithmetic or geometric averaging on this question. Your answer should be between 5.58 and 7.98, with no special characters. You may round to 4 decimal places if you wish, but only 2 decimal places are necessary for a correct answer.

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Estimating the ThreeYear Treasury Rate There are two ways to solve this problem using ei... View the full answer