Excel Online Structured Activity: Expectations Theory

Interest rates on 4-year Treasury securities are currently 5.3%, while 6-year Treasury securities yield 7.7%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below.

Open spreadsheet ( attached below)

If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate the yield using a geometric average. Do not round your intermediate calculations. Round your answer to two decimal places.

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Expectations Theory 4-yr. Treasury security yield 6-yr. Treasury security yield 5.30% 770% Algebraic solution Total returm earned on 6-year securities Total returm earned on 4-year securities Yield on 2-yr. securities, 4 years from now Formulas #N/A #N/A #N/A Geometric solution: 1+ Total return earned on 6-year securities 1+ Total return earned on 4-year securities Yield on 2-yr. securities, 4 years from now #N/A #N/A #N/A