Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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The yield on a one-year Treasury security is 4.4600%, and the two-year Treasury security has a 6.6900% yield. Assuming that the pure expectations
theory is correct, what is the market's estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate
calculations.)
8.9676%
10.2231%
11.3889%
7.6225%
Recall that on a one-year Treasury security the yield is 4.4600% and 6.6900% 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 0.3%. What is the market's estimate of the one-year Treasury rate one year
from now? (Note: Do not round your intermediate calculations.)
7.1023%
8.3556%
10.6116%
9.5254%
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Transcribed Image Text:The yield on a one-year Treasury security is 4.4600%, and the two-year Treasury security has a 6.6900% yield. Assuming that the pure expectations theory is correct, what is the market's estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.) 8.9676% 10.2231% 11.3889% 7.6225% Recall that on a one-year Treasury security the yield is 4.4600% and 6.6900% 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 0.3%. What is the market's estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.) 7.1023% 8.3556% 10.6116% 9.5254%
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 is correct, what is the market's estimate of the three-year Treasury rate two years from now? (Note: Do not round your
intermediate calculations.)
6.45%
7.10%
6.69%
6.53%
expand button
Transcribed Image Text: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 is correct, what is the market's estimate of the three-year Treasury rate two years from now? (Note: Do not round your intermediate calculations.) 6.45% 7.10% 6.69% 6.53%
Expert Solution
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Step 1

Pure Expectations Theory:

  • This theory states that forward rates are exclusively representative of the expected future rates.
  • Thus, the whole term structure is the reflection of the market's anticipations of future short-term interest rates.

 

NOTE:

  • “Since you have posted multiple questions, we will provide the solution only to the first question as per our Q&A guidelines. Please repost the remaining questions separately.”
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