The yield on 1-year Treasury securities is 6%, 2-year securities yield 6.2%, 3-year securities yield 6.3%, and 4-year securities yield 6.5%. There is no maturity risk premium. A.) Using expectations theory and geometric averages, forecast the yields on a 1-year security, 1 year from now. B.) Using expectations theory and geometric averages, forecast the yields on a 1-year security, 2 years from now. C.) Using expectations theory and geometric averages, forecast the yields on a 2-year security, 1 year from now.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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The yield on 1-year Treasury securities is 6%, 2-year securities yield 6.2%, 3-year securities yield 6.3%, and 4-year securities yield 6.5%. There is no maturity risk premium.

A.) Using expectations theory and geometric averages, forecast the yields on a 1-year security, 1 year from now.

B.) Using expectations theory and geometric averages, forecast the yields on a 1-year security, 2 years from now.

C.) Using expectations theory and geometric averages, forecast the yields on a 2-year security, 1 year from now.

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