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The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used estimate future short-term interest rates. Based on the pure
The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used estimate future short-term interest rates. Based on the pure expectations theory, is the following statement true or false? The pure expectations theory assumes that investors do not consider long-term bonds to be riskier than short-term bonds. True False The yield on a one-year Treasury security is 5.3800%, and the two-year Treasury security has a 6.4600% yield. Assuming that the pare expectations theory is correct, what is the market's estimate of the one-year Treasury rate one year from now? 7.5500% 9.5885% 6.4175% 8.6070% Recall that on a one-year Treasury security the yield is 5.3800% and 6.4600% on a two-year Treasury security. Suppose the one-year security does not have a maturity risk premium, but the two-year security does and it is 0.3000%. What is the market's estimate of the one-year Treasury rate one year from now? 5.9080% 6.9500% 7.9230% 8.8270% Suppose the yield on a two-year Treasury security is 5.83%, and the yield on a five-year Treasury security is 6.20%. Assuming that the pure expectations theory to correct, what is the market's estimate of the three-year Treasury rate two years from now? 6 45% 5 .46% 6 69% 7.10%
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