Quantitative Problem: Today, interest rates on 1-year T-bonds yield 1.6%, interest rates on 2-year T-bonds yield...

Transcribed Image Text:

Quantitative Problem: Today, interest rates on 1-year T-bonds yield 1.6%, interest rates on 2-year T-bonds yield 2.6%, and interest rates on 3-year T-bonds yield 3.8%. a. If the pure expectations theory is correct, what is the yield on 1-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places. % b. If the pure expectations theory is correct, what is the yield on 2-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places. % c. If the pure expectations 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. Do not round intermediate calculations. Round your answer to four decimal places. % Quantitative Problem: Today, interest rates on 1-year T-bonds yield 1.6%, interest rates on 2-year T-bonds yield 2.6%, and interest rates on 3-year T-bonds yield 3.8%. a. If the pure expectations theory is correct, what is the yield on 1-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places. % b. If the pure expectations theory is correct, what is the yield on 2-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places. % c. If the pure expectations 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. Do not round intermediate calculations. Round your answer to four decimal places. %