Using expectations theory: You observe that there is a one-year Treasury bond with a yield of 2.0%.
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Using expectations theory:
You observe that there is a one-year Treasury bond with a yield of 2.0%. You also assume that rates will be going up and that the one-year bond will go up by 0.5% each year. As an example, you expect the one-year bond in year 2 will be 2.5% and 3% in year 3.
1. With that information, what do you expect the 3-year interest rate to be?
2. Using the information above what interest rate would you expect a 5-year bond to have?
Related Book For
Principles of Corporate Finance
ISBN: 978-1259144387
12th edition
Authors: Richard Brealey, Stewart Myers, Franklin Allen
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