Suppose 1-year Treasury bonds yield 5.00% (when you invest for one year, this is the interest rate
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Question:
Suppose 1-year Treasury bonds yield 5.00% (when you invest for one year, this is the interest rate you would earn), while 2-year T-bonds yield 6.10% (when you invest for two years, this is the rate you would earn every year, no money you can withdraw until the end of year two). Assuming the pure expectations theory is correct, and thus the maturity risk premium for T-bonds is zero, what is the yield on a 1-year T-bond expected to be one year from now?
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