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EXPECTATIONS THEORY
Interest rates on 4-year Treasury securities are currently 6.8%, while 6-year Treasury securities yield 7.95%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate the yield using a geometric average. Do not round your intermediate calculations. Round your answer to two decimal places.
EXPECTATIONS THEORY
One-year Treasury securities yield 2.3%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 6.9%. If the pure expectations theory is correct, what is the yield today for 2-year Treasury securities? Calculate the yield using a geometric average. Do not round your intermediate calculations. Round your answer to two decimal places.
Interest rates on 4-year Treasury securities are currently 6.8%,
while 6-year Treasury securities yield 7.95%. If the pure
expectations theory is correct, what does the market believe that
2-year securities will be yielding 4 years from now?
=(1.0795^6/1.068^4)^(1/2)-1=10.287%
One-year Treasury securities yield 2.3%. The market anticipates
that 1 year from now, 1-year Treasury securities will yield 6.9%.
If the pure expectations theory is correct, what is the yield today
for 2-year Treasury securities?
=(1.023*1.069)^(1/2)-1=4.575%
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