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You observe the following curve for Treasury securities: Maturity Yield 1 year 5.5% 2 years 5.8% 3 years 6.0% 4 years 6.3% 5 years 6.5%

You observe the following curve for Treasury securities:

Maturity

Yield

1 year

5.5%

2 years

5.8%

3 years

6.0%

4 years

6.3%

5 years

6.5%

Assume that the pure expectations hypothesis holds. What is the predicted interest cost if you plan to borrow for 2 years, starting 3 years from today?

Select one:

a. 6.40%

b. 6.75%

c. 7.30%

d. 7.25%

e. 6.30%

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