Question: Suppose that you observe the following term structure for Treasury securities: MaturityYield 1 year6.0% 2 years6.2 3 years6.4 4 years6.5 5 years6.5 Assume that the

Suppose that you observe the following term structure for Treasury securities:

MaturityYield

1 year6.0%

2 years6.2

3 years6.4

4 years6.5

5 years6.5

Assume that the pure expectations theory of the term structure is correct. (This implies that you can use the yield curve provided to “back out” the market’s expectations about future interest rates.) What does the market expect will be the interest rate on 1-year securities 1 year from now? What does the market expect will be the interest rate on 3-year securities 2 years from now?

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