Question
1) The yield on a one-year Treasury security is 4.9200%, and the two-year Treasury security has a 6.6420% yield. Assuming that the pure expectations theory
1) The yield on a one-year Treasury security is 4.9200%, and the two-year Treasury security has a 6.6420% yield. Assuming that the pure expectations theory is correct, what is the markets estimate of the one-year Treasury rate one year from now?
2) Recall that on a one-year Treasury security the yield is 4.9200% and 6.6420% 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 0.35%. What is the markets estimate of the one-year Treasury rate one year from now?
3) Suppose the yield on a two-year Treasury security is 4.0%, and the yield on a five-year Treasury security is 5.7%. Assuming that the pure expectations theory is correct, what is the markets estimate of the three-year Treasury rate two years from now?
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