Suppose you are given the yields on the following Treasury securities. For simplicity, assume that there is no maturity risk premium.

Security	Yield
	(Percent)
1year	4.50
2year	5.90
3year	7.10
4year	8.40

If you want to forecast the yield on a 1year security in one year from now, you need to build the following equation:

= . And the yield on 1year security in one year would be .

If you want to forecast the yield on a 1year security two years from now, you need to build the following equation:

= . And the yield on 1year security in two years would be .

If you want to forecast the yield on a 2year security one year from now, you need to build the following equation:

= . And the yield on 2year security in one year would be .

If you want to forecast the yield on a 3year security one year from now, you need to build the following equation:

= . And the yield on 3year security in one year would be .

Step 3: Practice: Pure Expectations Theory

Now its time for you to practice what youve learned.

Suppose the market offers the following Treasury securities:

Treasury security	Yield
	(Percent)
1year	4.50
2year	5.90
3year	7.10
4year	8.40
5year	9.70
6year	11.60

Make the necessary calculations and complete the following table using the data on the securities yields and the pure expectation theory.

Investment	Yield
1year Treasury security, 1 year from now
2year Treasury security, 2 years from now
3year Treasury security, 1 year from now
4year Treasury security, 2 years from now