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Suppose 2-year Treasury bonds yield 4.4%, while 1 -year bonds yield 3.6%. r is 2%, and the maturity risk premium is zero. a. Using the
Suppose 2-year Treasury bonds yield 4.4%, while 1 -year bonds yield 3.6%. r is 2%, and the maturity risk premium is zero. a. Using the expectations theory, what is the yield on a 1-year bond, 1 year from now? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places. % b. What is the expected inflation rate in Year 1? Year 2? Do not round intermediate calculations. Round your answers to two decimal places. Expected inflation rate in Year 1: % Expected inflation rate in Year 2: % Interest rates on 4-year Treasury securities are currently 6.1%, while 6 -year Treasury securities yield 7.75%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places. % The real risk-free rate is 2.25%. Inflation is expected to be 2.25% this year and 4.00% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places. % What is the yield on 3-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places. %
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