Question
3. 3A) Interest rates on 4-year Treasury securities are currently 5.8%, while 6-year Treasury securities yield 7.65%. If the pure expectations theory is correct, what
3.
3A) Interest rates on 4-year Treasury securities are currently 5.8%, while 6-year Treasury securities yield 7.65%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places.
3B) The real risk-free rate is 2.95%. Inflation is expected to be 3.95% this year, 4.25% next year, and 2.6% thereafter. The maturity risk premium is estimated to be 0.05 (t - 1)%, where t = number of years to maturity. What is the yield on a 7-year Treasury note? Do not round intermediate calculations. Round your answer to two decimal places.
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