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6. Pure expectations theory The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest

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6. Pure expectations theory The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates. Based on the pure expectations theory, is the following statement true or false? A certificate of deposit (CD) for two years will have the same yield as a CD for ane year followed by an investment in another one-year Co after one vear. True False The yleld on a one-year Treasury secunty is 4.9200%, and the two year Treasury security has a 7.3800% yield. Assuming that the pure expectation: theory is correct, what is the market's estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculationsi) 9.8976% 8.413% 11.2833% 12.57% Recall that on a one-year Treasury security the yield is 4.92005 and 73800% on a two-year Treasury secunty, 5 uppose the one-year security does not have a maturity risk premium, but the two vear security does and it is 0.5%. What is the market's estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediare calculabions.) 11.2733% 10.1193% B. 0765% 7.5451% Suppose the yield on a two-year fressury security is 5.03%, and the yieid on a five-year Treasury security is 6.20%. Assurming that the pure. expectations theory is cocrect, what is the market's entimate of the three vear Treasury rate two years frem now? (Note: Do not round your intermediate calculbtions.) 6.455 6.61% 6.695 6.53%

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