Pure expectations theory

The pure $,$ ectations theory, or the expectations hypothesis, asserts that long$-$term interest rates can be

rates.

Based on the pure expectations theory, is the following statement true or false?

The pure expectations theory assumes that investors do not consider long$-$term bonds to be riskier tha

True

False

The yield on a one$-$year Treasury security is $5\mathrm{.}6100\%,$ and the two$-$year Treasury security has a $8\mathrm{.}4150\%$

theory is correct, what is the market's estimate of the one$-$year Treasury rate one year from now? $($Note:

calculations.$)$

$12\mathrm{.}8757\%$

$11\mathrm{.}2945\%$

$14\mathrm{.}344\%$

$9\mathrm{.}6003\%$

Recall that on a one$-$year Treasury security the yield is $5\mathrm{.}6100\%$ and $8\mathrm{.}4150\%$ on a two$-$year Treasury s

not have a maturity risk premium, but the two$-$year security does and it is $0\mathrm{.}25\%.$ What is the market's

year from now? $($Note: Do not round your intermediate calculations.$)$

$12\mathrm{.}2913\%$

$10\mathrm{.}7818\%$