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Lets suppose that the yield curve looks as follows: 1-year T-bond: 5.00% 2-year T-bond: 5.50% 4-year T-bond: 6.25% An investor would like to purchase a
Lets suppose that the yield curve looks as follows: 1-year T-bond: 5.00% 2-year T-bond: 5.50% 4-year T-bond: 6.25% An investor would like to purchase a 1-year bond today and then to invest in a 3-year T-bond one year from now. What yield would the investor expect to earn on the 3-year T-bond one year from now? That is, what is the expected yield on the 3-year T-bond?
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