Question: 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

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.

  1. False
  2. True

The yield on a one-year Treasury security is 5.3800%, and the two-year Treasury security has a 7.2630% yield. Assuming that the pure expectations theory is correct, what is the markets estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.)

  1. 11.6581%
  2. 9.1796%
  3. 7.8027%
  4. 10.4647%

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