The yield on a one-year Treasury security is 5.1500%, and the two-year Treasury security has 6.950% yield.
Question:
The yield on a one-year Treasury security is 5.1500%, and the two-year Treasury security has 6.950% 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?
Recall that a one-year Treasury security is 5.100% and 6.9500% 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?
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?
Fundamentals of Financial Management
ISBN: 978-1285867977
14th edition
Authors: Eugene F. Brigham, Joel F. Houston