Expectations Theory

$4-$yr$.$ Treasury security yield $6\mathrm{.}65\%$

$6-$yr$.$ Treasury security yield $7\mathrm{.}55\%$

Interest rates on $4-$year Treasury securities are currently $6\mathrm{.}65\%,$ while $6-$year Treasury securities yield $7\mathrm{.}55\%.$ 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. Algebraic solution:

Total return earned on $6-$year securities

Total return earned on $4-$year securities

Yield on $2-$yr$.$ securities$,4$ years from now

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 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.

$\_\_\_\_\_\%$