7. Pure expectations theory Aa Aa E The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates. Based on the pure expectations theory, is the following statement true or false? The pure expectations theory assumes that a one-year bond purchased today will have the same return as a one-year bond purchased five years from now. False True The yield on a one-year Treasury security is 5.3800%, and the two-year Treasury security has a 7.2600% 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? O O O 7.8030% 9.1800% 10.4652% 11.6586% Recall that on a one-year Treasury security the yield is 5.3800% and 7.2600% 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 0.4500%. What is the market's estimate of the one-year Treasury rate one year from now? O 8.2600% O 10.4900% 07.0210% 9.4160% 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? O 6.69% 07.10% 6.53% 6.45%