Today, interest rates on 1-year T-bonds yield 1.8%, interest rates on 2-year T-bonds yield 2.2%, and interest
Question:
Today, interest rates on 1-year T-bonds yield 1.8%, interest rates on 2-year T-bonds yield 2.2%, and interest rates on 3-year T-bonds yield 3.4%.
a. If the pure expectations theory is correct, what is the yield on 1-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places.
%
b. If the pure expectations theory is correct, what is the yield on 2-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places.
%
c. If the pure expectations theory is correct, what is the yield on 1-year T-bonds two years from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places.
Fundamentals of Financial Management
ISBN: 978-0324664553
Concise 6th Edition
Authors: Eugene F. Brigham, Joel F. Houston