Question: how do I do the 3 problems at the bottom Attempts: 5. 5: Interest Rates: Using the Yield Curve to Estimate Future Interest Rates shape

how do I do the 3 problems at the bottom
Attempts: 5. 5: Interest Rates: Using the Yield Curve to Estimate Future Interest Rates shape of the vieid curve depends on investors' expectations about future interest rates. The theory assumes that bond traders establish bond prices and interest rates strictly on the basis of e long-term bonds as being riskier than short-term bonds. For example, assume that you had a 1 year T for future interest rates and that they are indifferer bond that yields 1.8% and a 2 year T-bond that yields 2.25%. From this formation you could determine what the yield on a 1-year r on, year ar horizon could invest in the 2-year T-bond or they could invest in a 1-year T-bond today and a 1 year T-bond one year from today. Both options should vield the same result if the market is in equilibrium; otherwise, investors would buy and sel securi Today, interest rates on 1-year T-bonds yield 1.8%, interest rates on 2-year T-bonds Yield 2.25%, and interest rates on 3-year T-bonds yield 3.5%. a. If the pure expectations theory is correct, what is the vield on 1-year T.bonds one year from now? Be sure to use a geometric average in your calculations. Round your answer to four decimal places. Do not round intermediate calcufations. theory is correct, what is the vield on 2-year T.bonds one year from now? Be sure to use a geometnic average in your cakulations. Round your answer to four decimal places. De not round intermediate calculations s 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. Round your answar to four decimal places. Do not round intermediate calcufations
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
