8. 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 one year followed by an investment in another one-year CD after one year. True O False The yield on a one-year Treasury security is 4.6900%, and the two-year Treasury security has a 7.0350% 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? 9.4500% 10.7730% 8.0325% 12.0015% Recall that on a one-year Treasury security the yield is 4.6900% and 7.0350% on a two-year Treasury security. Suppose the one-year security does not have a maturity nisk premium, but the two-year security does and it is 0.45%. What is the market's estimate of the one-year Treasury rate one year from now? 8.5200% O 7.2420% O 10.8204% O 9.7128% Suppose the yield on a two-year Treasury security is 4.3%, and the yield on a five-year Treasury security is 5.4%. Assuming that the pure expectations theory is correct, what is the market's estimate of the three-year Treasury rate two years from now? 6.88% 5.34% 0 5.71% 6.14%