Attempts: Keep the Highest: /4 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 4.9200%, and the two-year Treasury security has a 5.9000% 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? 0 0 6.8900% 7.8546% 5.8565% 8.7503% Recall that on a one-year Treasury security the yield is 4.9200% and 5.9000% 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 0.1500%. What is the market's estimate of the one-year Treasury rate one year from now? 6.5900% 07.5130% O 5.6020% 8.3690% 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? 07.10% 0 6.53% 5.46% 0 6.45%