8. Pure expectations theory Aa Aa 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? The pure expectations theory assumes that investors do not consider long-term bonds to be riskier than short-term bonds O True O False The yield on a one-year Treasury security is 5.8400%, and the two-year Treasury security has a 7.0100% yield Assuming that the pure expectations theory is correct, what is the market's estimate of the one-year Treasury rate one year from now? 10.40 1396 6.9615% O 9.3366% 8.1900% Recall that on a one-year Treasury security the yield is 5.8400% and 7.0100% 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 0.3500%, what is the market's estimate of the one-year Treasury rate one year from now? 7.480090 8.5270% 9.500090 6.3580% Suppose the yield on a two-year Treasury security is 5.83%, and the yield on a five-year Treasury security is 6.20% Assuming that the pure expectations theory is correct, what is the market's estimate of the three-year Treasury rate two years from now? 0 6.69% 7.10% 0 6.45% 6.61%