Suppose the yield on a two year Treasury security is 5.83%, and the yield on a five-year Treasury security is 6.20%. Assuming that the pure expectations theory is correct, what is the market's estimate of the three-year Treasury rate two years from now?

a. 6.61%

b. 5.41%

c. 6.45%

d. 7.10%

The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates. Based on the pure expectations theory, is the following statement true or false? The pure expectations theory assumes that a one-year bond purchased today will have the same return as a one-year bond purchased five years from now. False True The yield on a one-year Treasury security is 5.1500%, and the two-year Treasury security has a 6.1800% yield. Assuming that the pure expectations theory is correct, what is the market's estimate of the one-year Treasury rate one year from now? 8.2308% 7.2200% 9.1694% 6.1370% Recall that on a one-year Treasury security the yield is 5.1500% and 6.1800% on a two-year Treasury security. Suppose the one-year security does not have a maturity risk premium, but the two-year security does and it is 0.2000%. What is the market's estimate of the one-year Treasury rate one year from now? 6.8200% 5.7970% 7.7750% 8.6610%