You observe the following yield curve for Treasury securities: Maturity Yield 1 Year 2.60% 3.80% 4.50% 4.70% 6.00% 2 Years 3 Years -4 Years 5 Years Assume that the pure expectations hypothesis holds. What does the market expect the yield on 3-year securities, 2 year from today?

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A: The horizon value is computed  by following formula:

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A: The formula that can be used for computation includes:

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A: The future value can be calculated using the following formula

Interest Rate

When you deposit your money with the bank, the deposit earns you some extra money at the end of the specific period – something more than what you deposited. That amount of money that the bank pays you for keeping the money with the bank is the “interest” and the percentage at which the bank pays you for your amount is called the “interest rate”.