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Ch 06: Assignment - Interest Rates The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future
Ch 06: Assignment - Interest Rates 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 False The yield on a one-year Treasury security is 4.9200%, and the two-year Treasury security has a 5.9040% 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? (Note: Do not round your intermediate calculations.) 6.8973% O 5.8627% 8.7596% 7.8629% Recall that on a one-year Treasury security the yield is 4.9200% and 5.9040% 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 0.25%. What is the market's estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.) 5.4342% 6.3932% 8.1194% 7.2882% 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? (Note: Do not round your intermediate calculations.) O 6.69% 6.53% 6.45% 6.61%
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