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Suppose the interest rate on a 1-year T-bond is 5.00% and that on a 2 -year Tbond is 5.90%. Assume that the pure expectations theory
Suppose the interest rate on a 1-year T-bond is 5.00% and that on a 2 -year Tbond is 5.90%. Assume that the pure expectations theory is NOT valid, and the MRP is zero for a 1-year T-bond but 0.40% for a 2 -year bond. What is the yield on a 1-year T-bond expected to be one year from now? Round the intermediate calculations to 4 decimal places and final answer to 2 decimal places. 6.00% 7.50%6.72%4.56% 6.12%
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